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New growth modes will push domestic consumption higher

As the real estate and auto markets, major drivers of China's consumer spending, slowed down due to government controls, the country is expected to rely more on new growth engines to support its increasingly crucial domestic consumption.

The world's second-largest economy is striving to shift its economy toward self-sustaining growth based on domestic consumption, as a contracting European economy and weak recovery in the US have slowed its exports.

China's economy grew 7.6 percent in the second quarter from a year ago, its slowest pace in three years, with weaker overseas trade and a cooling property sector causing the slowdown, data from the National Bureau of Statistics showed.

Analysts believe new sources of growth are showing potential to drive up domestic spending at a time when the economy sorely needs a boost.

Booming service industry

Zhouzhuang, a township and popular tourist destination in Jiangsu Province, witnessed a particularly strong surge in this year's tourism numbers.

The township in the city of Kunshan, which is famous for its well-preserved ancient residences and picturesque views of local waterways, hosted 2.8 million tourists in the first six months of 2012, although its average tourist volume is just 3 million annually, said Shen Qiuping, director of the township's information office.

In many cities, the tourism, entertainment and education sectors have entered an era of fast growth, said Xiao Lin, deputy director of Shanghai's reform and development commission, the city's economic planning body.

"When a country's per capita GDP reaches US$3,000, the structure of household spending changes. People will spend more on services," Xiao said.

Statistics showed the added value of the service industry in 10 major cities in the Yangtze Delta grew at a faster pace than GDP in the first quarter.

In Shanghai, the country's economic hub, turnover in the information service sector and creative industry zones grew by more than 20 percent in the same period, during which time Shanghai residents spent about 30 percent of their income on services.

"For a long time, we focused on promoting the consumption of goods. Actually, the potential of the service industry driving up consumption is way bigger," said Zhao Ping, a Ministry of Commerce official.

"The government should turn to promoting the service industry to expand the consumer market and therefore form a new driving force for the economy," Zhao said.

Yihaodian, China's largest online supermarket, took 173 percent more orders through its mobile application in the first quarter of this year compared with the previous quarter, said Wang Lili, director of the online retailer's wireless business department.

It is getting easier for people to shop. Customers can place orders simply by using their mobile phones to snap photos of codes attached to advertisements placed in subway stations, Wang said.

By the end of June, the number of Chinese online had reached 538 million. Among them, 388 million said they use their phone as their primary means of surfing the Internet, outnumbering PC users for the first time, according to data released by the China Internet Network Information Center.

With more people using smartphones, "mobile shopping" is growing fast.

According to iResearch, a leading Chinese market research firm, the scale of mobile e-commerce in China topped 6.67 billion yuan (US$1.05 billion) in the first quarter, up more than five-fold from a year ago. The number for the whole year is expected to reach 25 billion yuan.

Expanding rural market

Consumption in vast rural areas is expanding at a faster pace than that of cities, with more retailers eyeing these untapped regions.

Duan Xingang, president of the Dalian Supermarket Group in Liaoning Province, is making final preparations for the opening of the group's first mall in the countryside.

"Although it is challenging to operate stores in rural areas because of high logistics costs and it's difficult to find locations, we still have faith, as farmers' incomes will continue to rise," Duan said.

Rural incomes grew 12.4 percent in the first six months, faster than urban income growth of 9.7 percent, according to the NBS data.

Meanwhile, rural consumption rose 14.5 percent to 1.31 trillion yuan in the first half, 0.2 percent higher than the urban consumption growth rate.

NBS spokesman Sheng Laiyun said earlier this month the country is on track to upgrade its consumption structure, adding the government will create policies to promote consumer spending.

However, increased bank savings due to high housing prices, education and medical costs, as well as a lack of universal social welfare, are widely regarded as hurdles for consumer spending growth.

Reforming the income distribution system and improving social welfare will be key steps in spurring consumer spending, said Ba Shusong, deputy director of a financial research center under the State Council.

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