China may overtake France in economy
(Bloomberg)
Updated: 2006-01-23 09:12

Room For Growth

Annual growth averaging 9.6 percent over the past 25 years made houses, cars and mobile phones affordable to millions of consumers. China is now the world's largest mobile-phone market, with more than 380 million subscribers, and the fastest-growing major car market for Ford and General Motors Corp. Ford's car sales in China jumped 46 percent last year, it said Jan. 16.

There's still room for growth. Only eight in 1000 Chinese owns a car, according McKinsey & Co. Mobile-phone penetration stood at 29 percent in November. In neighboring Hong Kong, under Chinese rule since 1997, there are more cell phone accounts than people.

China's retail sales probably gained 13 percent in 2005 and may maintain that pace this year, the National Development and Reform Commission said Dec. 27. For December alone, retail sales probably rose 12.7 percent, according to a Bloomberg survey.

``You have within China a core of people in the urban areas with significant incomes and you are beginning to see some pick-up in their consumption,'' Steven Dunaway, deputy director of the International Monetary Fund's Asia and Pacific region, said in a telephone interview from Washington.

Still, China had more than 100 million people living in poverty at the end of 2004, more than the population of Germany, and average per capita income ranked 129th in the world at about $1500, behind Egypt and Iran, statistics bureau commissioner Li Deshui said on Dec. 20.

The government abolished agriculture taxes from Jan. 1 this year and is raising thresholds on income tax, increasing minimum wages and civil servants' salaries. Even so, measures adopted so far will likely only provide a temporary boost to consumer spending, said Dunaway of the IMF.

``If the government wants a long-term solution, it has to have a properly functioning financial system to give people access to credit, and increase spending on health, education and pensions,'' he said. ``That could substantially diminish the strong savings motive among households and give them the confidence to increase spending.''