China Moves to Bolster Domestic Consumption

FEBRUARY 9, 2009
Source: WSJ

BEIJING -- China announced new plans to lower distributions costs and improve the quality of its rural retail sector, hoping that less expensive, more reliable goods will help boost consumption amid the current economic downturn.

The Ministry of Commerce, announcing the planned measures at a press conference Monday, saying it aims to promote consolidation in the country's fragmented logistics and distribution industry, to improve its ability to deliver products cheaply to consumers. The ministry also outlined a plan to support the opening of "countryside stores" where rural residents can purchase safe, good quality products.

The government hopes to bolster domestic consumption to spur economic growth as exports and investment have fallen. The new measures are particularly aimed a spurring spending among China's more than 700 million rural residents, who are feeling the impact of the downturn: The government said this month that 20 million rural migrant workers have lost jobs in recent months. A severe drought in China's north, which some analysts say is the worst since 1951, is also threatening to damp rural consumption.

"Central to our policies should be increasing the consumption of low-income households," Jiang Zengwei, vice-minister of commerce, told reporters.

Ministry officials offered few details on their new plans, which come on top of other programs in place to stimulate rural consumption. They said that central government support for consolidation in the logistics and distribution sector would include intervening to prevent local government protectionism when it threatens to impede cross-regional mergers. It also will encourage firms to adopt e-commerce as a way of lowering business costs.

The ministry also plans to improve the quality, and hopefully the number, of small-scale retailers in the countryside, to both encourage more consumption create jobs. Officials said they will set administrative requirements, such as minimum capital requirements, to promote well-resourced stores that can afford to stock quality products.

The ministry didn't explain how its new regulations will make it easier for people to open up shops, but officials estimated that its plans will create some 77,000 jobs by 2010.

"Once these plans are put in place, I believe that we will see a phenomenal growth in consumption," Mr. Jiang told reporters. He said if the drought persists and affects rural consumption, "the government is prepared to come up with more measures to offset the consumption decrease."

Responding to a question Monday, Mr. Jiang said, that despite the government's focus on raising consumption, it will not attempt to spur a "Buy China" policy akin to the "Buy American" provision in the U.S. stimulus package. The Chinese government has warned in recent months of foreign governments becoming protectionist, and Mr. Jiang repeated the need for international trade to continue. "One country cannot satisfy its own demand simply by depending on its own production," he said.