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China to focus on domestic demand

CHINA intends to transform its drive to boost domestic demand into a long-term strategy and take further measures to stimulate consumer spending to escape an economic slowdown that began with declining exports.

The country will "give full play" to the "leading role" of domestic demand, particularly consumer demand, in driving economic growth, Premier Wen Jiabao said in his government work report yesterday at the opening of the annual session of the National People's Congress.

China will actively boost domestic demand by increasing personal income, encouraging car buying, tapping the rural market, stabilizing real estate, offering proper housing for low-income families and accelerating the reconstruction of areas devastated by last year's Sichuan earthquake, Wen told nearly 3,000 lawmakers at the Great Hall of the People in Beijing. He said 2009 could be "the most difficult year for China's economic development since the beginning of the 21st century."

The government will raise the proportion of the national income that goes to wages, Wen said, adding that the state will continue to adjust income distribution and increase subsidies to farmers and low-income urban residents.

Wen also said that central government investment, planned at 908 billion yuan (US$132.7 billion) this year, will go mainly to projects that can improve people's lives and create a more favorable environment that encourages citizens to spend.

"We must channel government investment into areas where it best counteracts the effects of the global financial crisis and to weak areas in economic and social development," he said.

In the past, China relied heavily on exports for growth, but it switched to boosting domestic demand to shore up the economy last November in addition to announcing a 4-trillion-yuan stimulus package. Those moves followed a sharp decline in overseas demand as the global economic turmoil began to spread in the second half.

The country's growth cooled to a seven-year low of 9 percent last year, with a contribution of only 0.8 percentage points from exports, compared with about 3 percentage points to annual growth of 13 percent in 2007.

This year, China is under immense pressure to reach its economic growth target of 8 percent to create enough jobs to ensure social stability. Prominent economist and political adviser Li Yining said that boosting domestic demand would be a decisive factor in attaining the growth goal this year.

"It is the right direction to boost domestic demand now," said Yan Chengzhong, head of the Economic Development and Cooperation Research institute at Shanghai-based Donghua University.

"We have to count on domestic demand and investment to make up for the hard-hit exports and spur growth," said Yan, a deputy to the NPC session.

China has announced several aggressive measures to bolster domestic demand and increase investment along with the massive stimulus package. The efforts include a plan to expand rural sales of home appliances by providing a 40-billion-yuan subsidy to rural buyers, and support plans for key industries.

Wen's government work report provided additional details on those efforts, such as accelerating development of markets for second-hand cars and car rentals, encouraging retailers to open stores in more townships and villages and allocating 43 billion yuan in subsidies for the construction of low-rent housing.

Wen said the government will also make efforts to expand domestic spending in culture, recreation, tourism and new areas such as the Internet and animation. In addition, the premier said the country will raise spending on social programs in 2009, including pensions, medical reform and education.

The country's efforts to stimulate the economy have led to a proposed budget for 2009 that envisions a record deficit of 950 billion yuan. "This is the most active, direct and efficient way we can expand domestic demand," Wen said.


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