Editor's note: Since its reform and opening up, great changes have occurred in China's circulation sector, which is an important industry in the national economy.

In a bid to probe the sector's new development opportunities from past experiences, the Ministry of Commerce and the Development Research Centre of the State Council jointly compiled the Report on the Development of China's Circulation Industry.

The following are excerpts from the report.

Major features of the industries development in 2004

China has maintained a rapid economic growth since 1993 and the market share of the country's circulation sector continued to expand.

In 2004, total retail sales of consumer goods grew 13.3 per cent to 5.395 trillion yuan (US$651.6 billion), 4.33 times as much as in 1993.

Retail sales of production materials increased 19 per cent to 11.406 trillion yuan (US$1.38 billion) last year, 5.04 times that of 1993.

The country's foreign trade volume exceeded US$100 billion in 2004, 35.7 per cent up over the previous year, while commodity transactions in the futures market reached 14.69 trillion yuan (US$1.77 trillion), a year-on-year growth of 35.6 per cent.

With its rapid development, the circulation industry plays a more and more important role in driving economic growth, satisfying the increasing consumption needs of Chinese people, creating employment and uniting domestic and overseas markets.

From 1993, added value produced in the sector contributed to some 8 per cent of the gross domestic product (GDP) every year.

During the same period, the annual growth rate of the circulation industry was faster than the country's GDP growth.

Retail sales of consumer goods and of production materials increased on average by 14.24 per cent and 15.85 per cent respectively each year.

Both the figures were higher than the average GDP growth, which stood at 13.27 per cent, indicating the circulation industry's key role in China's economic development.

As a relatively labour intensive industry, the sector created a large number of employment opportunities so making a contribution to economic growth as well as social stability.

During the past 12 years, the retail, distribution and catering sectors created 1.77 million jobs each year, accounting for 23.6 per cent of the country's total new jobs.

The industry is also a major source of tax revenue. In the domestic market, value-added taxes, business taxes and enterprise income taxes totalled 304.25 billion yuan (US$36.7 billion) last year, 25.83 per cent up over 2003. The growth is 1.1 percentage point higher than that of the nation's total tax revenue.

The marketization process in the sector was also enhanced.

At present, although prices of some special products like tobacco, gas and medicine are still set by the government, the market played the major role in resource allocation.

Statistics show sales of market-oriented products accounted for 96.1 per cent of the total retail sales of consumers goods.

In addition, more products met a balance between supply and demand.

According to an analysis of 600 products in the second half of 2004, 25.7 per cent reached a balance, 2.7 percentage points up from the first half.

The problem of oversupply improved as well, but it is still a buyers' market.

With the reform and opening up, a multi-level competition structure is taking shape.

All the sectors in the circulation industry, ranging from retail to distribution, from catering to service sector, from auction and leasing to e-business, have enjoyed rapid growth.

As for the catering sector, sales reached 748 billion yuan (US$90.34 billion) in 2004, a year-on-year growth of 23.3 per cent.

The 4,000 auction companies in the country registered a transaction volume of 200 billion yuan (US$24 billion), 45 per cent up over the previous year.

In addition to the fast development, adjustment of the industry's structure accelerated.

Large-scale circulation enterprises and commodity markets grew rapidly.

The top 30 chain operators achieved sales of 384.56 billion yuan (US$46.4 billion), 32.9 per cent more than that of the previous year.

And by September 2004, there were 3,367 commodities markets which had a trade volume of over 100 million yuan (US$12 million), 102 more than the year 2003.

Meanwhile, the circulation industry in central and western China picked up its development speed, spurred on by the industry's rapid growth in the eastern areas.

Fast development of modern business models like chain operations and e-business and the emergence of new service sectors, such as the exposition business, became the spot light of the industry growth.

Revenue from the country's expo business reached 9 billion yuan (US$1.08 billion) last year,an annual growth of some 20 per cent.

China's circulation industry further opened up to foreign investors. However, their market share is still small.

From 1992 to 2004, the government approved the establishment of 302 foreign-funded commercial enterprises. Their sales, about 240 billion yuan (US$28.99 billion) in 2004, made up 4.5 per cent of China's retail sales of consumer goods.

During these years, government regulation, macro control and supervision of the circulation market further strengthened.

The market environment improved with wider industry reform and the market was further regulated by the establishment of legal systems.

Issues to be addressed

The first is to strengthen the industry's lack of competitiveness.

Despite the rapid development, there remain some problems that make domestic circulation companies less competitive compared with enterprises from developed countries and even some developing countries.

Problems include small business size, fragmented industry layout, irrational industry structure, relatively low efficiency, weak business expansion ability, poor financial operation, inefficient cost control and low brand values.

The second issue is the need to further regulate business. The legal system is still imperfect and there is no established social credit system.

The third issue is to strengthen the infrastructure in the circulation sector by, for example, building modern business facilities and warehouses, and by increasing investment in logistics and establishing information systems.

The fourth issue is to improve the market environment for the industry's development.

Society does not know enough about the circulation industry's role in national economic and social development.

There are also a lack of regulations and systematic policies to support the industries growth.

Projection for 2005

The healthy, stable and rapid development of the national economy will offer a sound development environment and opportunity for the circulation industry this year.

It is estimated that the industry will continue to maintain fast growth in 2005.

Retail sales of consumer goods will exceed 6 trillion yuan (US$724.6 billion), an actual increase of some 10 per cent.

Sales of production materials will top 13 trillion yuan (US$1.57 trillion), 14 per cent up on 2004.

Industrial reorganization will speed up. As large-scale enterprises are built up, mergers and acquisitions among middle and small-sized companies will accelerate as well.

And with the full opening of China's circulation market, foreign-investors and enterprises will further expand their businesses in the country.

(China Daily April 25, 2005)