Price increases could hide real gains: Ministry

08:40, March 17, 2010      

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China will continue stimulus programs to boost domestic consumption this year, according to the Ministry of Commerce (MOFCOM), but the actual growth of consumption may not be as obvious as last year's due to soaring prices this year.

Total retail sales amounted to 12.5 trillion yuan ($1.83 trillion) last year, up 15.5 percent year-on-year without the negative pricing factor, and the rural consumption growth rate exceeded that of urban areas by 0.2 percentage points for the first time.

The incentive programs for automobile and motorcycle purchasing in rural areas will be extended to the end of this year and early 2013 respectively, Fang Aiqing, assistant minister of Commerce, said at a MOFCOM press conference Saturday.

The "old-for-new" rebate policy will be raised from the range of 3,000-6,000 yuan ($439.24- $878.48) to 5,000-18,000 yuan ($732.06-$2,635.43).

A preferential purchase tax rate of 7.5 percent compared with the full 10 percent for fuel efficient cars, though 2.5 percent higher than last year, will also be continued to the end of this year, Fang said.

About 1,500 to 2,000 delivery centers will be built in rural areas, aimed at cutting intermediaries and lowering the cost to consumers.

The household service sector will also get a boost, Fang said, adding that approximately 200,000 laid-off urban workers and immigrant workers will get training this year.

Fang didn't elaborate, though, on how much consumption will contribute to this year's GDP, something he said depends on the investment, import and export situation.

The consumption boost will continue as most of the stimulus programs are being extended, said Niu Li, a researcher with the State Information Center.

Niu said that the retail sales are expected to grow by about 18 percent this year, but the actual growth rate might be slightly lower than last year's due to the inflation rate this year.

The overall consumer price index (CPI) saw a negative 0.7 percent growth for last year, but the overall CPI target this year is 3 percent. That means the actual growth in retail sales would be around 15 percent, lower than last year's 16.9 percent with the pricing factor, according to Niu.

Following the banks' tightening credit policy on infrastructure programs, investment has slowed and the overall trade surplus will continue to decrease, as China's economy is recovering faster than most of its trading partners and imports will increase more than exports, he said.

Despite the slight slump in investment and the trade surplus, the GDP still is expected to grow by 9.5 percent this year, Niu said.

China's GDP grew by 8.7 percent last year, with investments contributing 92.3 percent or 8 percentage points and consumption 52.5 percent or 4.6 percentage points.

Negative growth in exports dragged down the GDP by 3.9 percentage points, cutting 44.8 percent of the growth, accord-ing to the data released by the National Bureau of Statistics in February.

Source: Global Times
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