Domestic spending is rebalancing the economy

Releasing growth potential

Although domestic consumption is contributing more to economic growth, experts point out that there are many factors affecting consumer demand, including tax and interest rate changes.

A key to unleashing domestic consumption is promoting structured tax cuts and lowering the tax burden on citizens, said Liu Yuanchun.

In the short term, China needs to improve fiscal, tax and credit incentives to encourage consumption, and also focus on improving its consumption environment and fostering consumption growth by developing new ways to consume, such as online shopping.

But in the long term, Liu believes that the government should boost domestic consumption by deepening income distribution reforms, expanding employment opportunities, and improving the nation's social security system.

Yet, sustainable economic growth cannot rely on a consumption-driven model alone. China must develop a new economic growth pattern based on balanced development that is funded by domestic consumption, investment and exports, according to Zhang Jun, Director of the China Center for Economic Studies at Fudan University in Shanghai. There are different stages of economic development. Consumption's contribution to China's GDP will substantially increase only if the Chinese economy maintains rapid, sustainable growth over the next decade, the middle-income population continues to increase and the service industry continues to grow.

By 2020, China will be the world's second-biggest consumer market after the United States, according to McKinsey & Co's Annual Chinese Consumer Survey. If policy adjustments can effectively boost consumption, the increase in purchasing power may far exceed expectations in the coming years. CA