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January 13, 2010

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China set for world consumer crown

CHINA has been forecast to become the world's largest consumer market by 2020, driven by people's rising income and less savings.

China's household income of the bottom 20 percent of earners rose by 50 percent last year from 2004, while the top 10 percent surged 255 percent to about 34,000 yuan (US$4,978) per month, Credit Suisse found in its proprietary China Consumer Survey released yesterday.

The savings rate has dropped from 26 percent to 12 percent during the same period.

Based on this trend, Credit Suisse expects China's consumer spending will climb and its share of global consumption will increase from5.2 percent at US$1.72 trillion in 2009 to 23.1 percent at US$15.94 trillion in 2020, overtaking the United States as the world's largest consumer market.

The company interviewed 2,700 respondents in eight major cities between October and November last year for the latest survey.

Vincent Chan, head of China Equity Research at Credit Suisse, said the declining share of household savings, particularly from 2008 onward, could be a natural tendency that came with higher income.

"At present, the reduced savings are spent mainly on housing, including mortgages and rental payments - a reflection of the desire among Chinese to improve living conditions and showing the burden of rising property prices," Chan said.

People would probably spend more on property ownership and tend to buy more big-ticket items such as cars, LCD television sets and personal computers, Chan said.

He said a major concern over long-term consumer market development was the clamp on wage increase because of a labor oversupply.

Foreign brands still had advantages in luxury goods and high-tech products, while consumer confidence in domestic brands was generally rising, the survey found.

Chinese companies had a much stronger position in the consumer-service sector, such as telecoms, Internet and travel, it found.

China has tried to adjust its export-driven economy to rely more on domestic demand and this process has accelerated since the outbreak of the global financial crisis.

In 2008, during the crisis, China started to provide subsidies for rural buyers of big-ticket items such as TV sets, air-conditioners, washing machines and refrigerators.

The program expanded to cities and covered more products, including computers and mobile phones.

It boosted China's retail sales to 11.2 trillion yuan (US$1.64 trillion) in the first 11 months of last year, up 15.3 percent on an annual basis.

China also lowered the sales tax on small-engine vehicles last year.

The move triggered a surge in car sales, enabling China to eclipse the US as the world's largest auto market.

China will continue various stimulus measures to further boost domestic demand this year.


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