Consuming more

A key objective of the current Five-Year Plan is increasing the contribution of domestic consumption to GDP. It was good timing by China's central bank to make the rate increase announcement after the so-called Golden Week of China's seven-day New Year holiday, traditionally one of the largest spending periods of the year in China. This year's Golden Week was the most golden one ever, with consumer spending over the period surging 19 percent to 404.5 billion yuan, or about $61.3 billion, meaning that Chinese shoppers spent on average $8.75 billion per day over the holiday. If China is going to consume more, one would expect its imports to increase. This was very much the case in January, when imports increased by 51 percent to $144 billion (see Chart 3). With exports increasing 37.7 percent to $150.7 billion, China's monthly trade surplus narrowed to $6.5 billion in January from $13.1 billion in December. The trade surplus is likely to rise again in the coming months, however, as China's exports increase amid further recovery of the global economy.

Economic planning in China in 2011 is to a large extent going to be dominated by the fight against inflation, and in this endeavor China plans to grow at a slower speed while increasing the contribution of domestic consumption to GDP. As recent history has shown, all of these things will be challenging to achieve, yet if China can contain rising prices in 2011 it will make anything else all the more bearable.