Analysts believe the commodity market will continue to register steady growth in the second half of 2004, but that growth will slow slightly from the first half of the year.

Retail sales of consumer goods are likely to grow 10.5 percent year-on-year, to 5 trillion yuan (US$602 billion) during the July-December period, said the Ministry of Commerce. Sales of industrial products are expected to climb15 percent, to 10 trillion yuan (US$1.2 trillion).

Qi Jingmei, a senior economist with the State Information Center, said that steady growth in retail sales will be music to the ears of the central government, which is trying to reduce investment but lift consumption.

Retail sales were 2.5 trillion yuan (US$304 billion) in the first half of this year, an increase of 12.8 percent year-on-year. The growth rate was 4.8 percentage points higher than in the same period last year.

The catering industry performed especially well, becoming a new growth area for retail sales.

The commerce ministry said that such issues as the low consumption rate, slow growth in rural sales and higher inventories must be addressed in order to sustain development of the nation's commodity market.

China's average consumption rate stood at 58.5 percent over the past 10 years, the ministry said.

That rate was 20 percentage points lower than those of developed countries.

During the first half of this year, retail sales growth hit a record level last seen in 1997. However, that rate was 22.3 percentage points lower than that for fixed asset investment. As a result, the consumption rate dropped to 55.4 percent, the lowest level since 1978.

Figures from the National Bureau of Statistics show that per capita income earned by both urban and rural residents increased by a wide margin during the first half of this year. However, the consumer confidence index dropped.

Car sales slid 5.6 percentage points during the first five months from the same period a year ago, and sales of commodity housing declined 3.2 percentage points.

Development of the rural market was also far from satisfactory, although the government has taken steps to fuel the development of agricultural and rural areas, according to the Ministry of Commerce.

Rural retail sales rose 9.1 percent year-on-year during the first half of this year, but the growth rate was 5.6 percentage points lower than that in urban areas.

Growing inventories in some sectors are another serious concern. By the end of May, stocks of automobiles , alumina, steel and cement had climbed 36 percent, 25 percent, 8 percent, 3 percent, respectively, compared with a year ago.

The increased costs resulting from higher inventories have led to a slide in companies' profits, the ministry said.

Weakness in the distribution sector and local government restrictions may also have a great impact on the development of the commodity market.

Zhang Junkuo, a senior researcher at the State Council Development Research Center, said China's overall economic performance is good at the moment.

"The national economy has maintained stable but fast growth. Economic efficiency has steadily improved, and individual income rose noticeably," he said.

Control is being gained over uncertainties and unhealthy factors in economic performance, although the government must heed the fact that they have not been fundamentally rooted out.

Energy and transportation bottlenecks and rapid growth in fixed asset investment in some sectors are still a cause for concern, said Zhang, but the government should not take further tightening measures to cool growth because fixed asset investment, money supply and other indicators have slowed markedly.

Fixed asset investment declined 14.4 percentage points during the second quarter compared with the first quarter.

Broad money supply, or M2, rose 16.2 percent year-on-year in June, according to the People's Bank of China. The growth rate was 4.7 percentage points lower than a year earlier, and 1.3 percentage points down from the previous month.

Outstanding renminbi loans were up 16.3 percent in June. That growth rate was 6.8 percentage points lower than a year earlier and down 2.3 percentage points from the end of May.

(China Daily July 30, 2004)