China Tries to Loosen Consumer Purse Strings with "Holiday Economics"

Restaurants are dusting off their chopsticks and offices are emptying as China closes down for a third week-long break this year in a bid to attract consumers to part with their hard-earned cash.

Travel agent He Ying is reaping rewards from the "holiday economics" -- she has booked 400 overseas trips for Chinese tourists ahead of the week-long National Day break, twice as many as this time last year.

"The government wants people to spend and has taken a lot of measures to ensure they part with their money," said He, a manager at Shanghai-based tour operator Spring International.

The extended National Day holiday which begins October 1, is the third week of holidays this year and the latest in a string of schemes to get a nation of hard-savers to set the cash tills ringing again.

Authorities have also given public servants a pay rise and imposed a tax on savings late last year.

With bank deposits totalling six trillion yuan (US$722 billion), China is one of the highest-saving countries in the world.

And since 1998, reform of ailing state-owned firms has generated a wave of lay-offs and increased costs for health, housing and education, which in turn has bolstered the trend of consumers to put their money in the bank and leave it there.

But there are signs that people are beginning to spend again and the holiday is likely to give sectors like catering and tourism a further shot in the arm.

"Catering, restaurants and tourism will all be going full steam so the holiday will help consumption," said Ben Chui, research manager at Hongkong Shanghai Banking Corp (HSBC).

For her part, He Ying expects booming business over the break, "partly because the government fixed the holiday date much earlier so people have been able to plan for it, and partly because people have more money in their hands," she said.

Overseas economists agree, saying China's statistics suggest the economy is recovering.

Retail sales, the main indicator of consumption, rose nine percent in August from the same month last year, compared with only six percent in the same month of 1999.

Meanwhile exports surged 27 percent in August, while a 55 percent rise in imports reflected a more active domestic economy in China.

In the same month, state investments in fixed assets such as machinery and new plants gained 13 percent, as the government continued to pour money into the economy.

People feel more comfortable about spending than a year ago now they are more accustomed to the economic uncertainty that goes hand-in-hand with reform, said Dong Tao, senior regional economist at Credit Suisse First Boston.

Although "there are lots of people worried about their jobs and farmers are in bad shape ... the rebound in consumption is real, sustainable but narrowly-based," he added.

The holiday will not boost sales in all sectors of the economy or across the country, economists explained.

Consumption is likely to remain sluggish in the industrial rustbelts of the north-east and poverty-stricken inland provinces, according to Vincent Chan, China economist at UBS Warburg.

But in coastal areas such as Guangdong and Fujian which have export-oriented economies and major cities like Beijing and Tianjin, people are likely to go shopping over the break.

But Chan cautioned, "At the end of the day the driving force for consumption is income expectation. If people think their income is going to grow they'll spend money."

For employees with jobs in telecommunications, the Internet or tourism hopes for better earnings are realistic given that overseas economists expect China's service sector to grow rapidly.

It is another story for anyone employed in state-owned heavy industry or the millions of people who have already been laid off.

China's policy makers know that giving people a longer holiday will not get rid of gnawing uncertainties on social security, pension and health benefits or banish the looming spectre of redundancy.

People's Daily Online --- http://www.peopledaily.com.cn/english/