CONSUMPTION-BASED GROWTH IN CHINA

CONSUMPTION TO LEAD GROWTH

Chi Fulin

China Daily, February 28, 2012

Urbanization and restructuring will boost residents' spending and promote more sustainable development

It is China's short-term policy goal as well as its medium and long-term strategic aim to reverse the imbalance between investment and consumption as soon as possible and establish a consumption-dominated development pattern.

China's economic prospects will to a large extent be decided by how successful it is in achieving the transformation to a consumption-dominated development pattern. If the process is smoothly pushed forward in the coming five to 10 years, it will have historical consequences for the country's successful medium and long-term development and will play a big role in promoting global economic rebalancing, recovery and growth.

China's economy is expected to continue growing in the coming decade, despite the probability of continuing turbulence and contraction in the international market. In the short term, investment is still likely to spur the country's economic growth, but investment can only be a long-term driver for growth if it is effectively converted into consumption. So short-term investment must serve medium and long-term consumption. Any investment that sacrifices consumption will damage the internal driving force for economic growth and will only add to the country's economic uncertainties in the long run.

The country can maintain economic growth of around 8 percent in the next two decades if it manages to fully tap its consumption potential. For example, by raising its consumption to GDP ratio to more than 60 percent and lowering the investment to the GDP ratio to less than 40 percent.

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