2010: a dance with the tiger

08:40, February 21, 2010      

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The country's robust spending power was put on display last week, with retailers posting record numbers. But economists weren't distracted from the big picture, saying Beijing needs to further prioritize domestic consumption to ensure sustained growth.

Consumers opened their pocketbooks to the tune of 340 billion yuan ($50 billion) during the holiday week – 17.2 percent more than last year, according to the Ministry of Commerce.

And amid a sluggish property market, analysts remain cautiously optimistic, saying the latest data paints a murky picture of economic recovery this year.

Sales of food by major retailers rose 16.5 percent, year-on-year, while sales of tobacco and liquor were up 13.2 percent. Communication equipment, jewelry, garments and home appliances were also in great demand, with sales soaring by between 15.4 and 19.2 percent.

Domestic tourism also surged during the week. Beijing received 910,000 inbound tourists, up 10.6 percent on last year, the Municipal Tourism Bureau said.

In tropical Hainan province, tourism grew 18.49 percent to 1.06 million, and the revenue amounted to 2.8 billion yuan, a whopping 62.47 percent jump over last year.

"China has walked out of the shadow of the financial crisis and is on track to a stable recovery. Otherwise residents dare not drain their wallets," said Wan Jun, an economist at the Chinese Academy of Social Sciences (CASS).

He suggested that if there are no major fluctuations in the world economy, China could achieve a GDP growth of above 9 percent this year.

But at the same time, he said, all that spending and growth raise red flags.

"China should be alert to the risks of both an overheated economy and overcooling economy," he said, adding that government investment last year successfully offset the negative effects of declining exports, but it also created overcapacity problems.

Investment accounted for 92.3 percent of GDP growth in 2009, the National Bureau of Statistics (NBS) announced early this month. Of that, investment in fixed assets grew 30.1 percent.

"Boosting domestic consumption is still a priority if China expects to sustain its growth," he said. "Concrete measures such as increasing residents' income and improving the social insurance system need to be taken."

In the last five years, the impact of consumption on the economy has dropped from 70 percent in 2005 to 40 percent due to a much stronger growth of investment and net exports.

In 2008, the overall contribution of consumption to the economy was slightly higher than capital investment. However, in 2009, the contribution accounted for only 57 percent of capital investment.

Tian Yun, of the China Macro Economics Institute, warned that although the economy is getting better in terms of economic aggregate, the government still faces challenges.

"This year, another 6 million graduates will enter the job market. The government has to ensure that the employment situation will be satisfying," he said, "and authorities also need to balance urban and rural de-velopment."

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