Consumers realize the country is diversifying its commodities, cutting prices, improving services and building up brands - all of which suggest that commodity prices will see a sharp drop in the coming few years.

Since January 1, 2000, tariffs on automobile imports have declined, pushing down prices of imported automobiles by 10 to 12 percent, which has given rise to a series of price cuts in the domestic auto industry.

While slashing prices somewhat stimulates automobile consumption, it also fosters consumers' wait-and-see attitude.

Domestic manufacturers of microwave ovens, air-conditioners, televisions and VCD players have also been engaged in vicious price wars over the past few years, resulting in massive oversupply in the sector.

However, consumers are maturing in terms of their purchasing behavior. Stressing value, they intend to get the most out of their purchases.

Another reason for the drop in consumption is the uncertainty about the future. Many residents lack confidence in the current reforms of the housing, medical and pension system.

A large number of residents also are thinking long term and thus save money for future spending on housing, medical care and their children's education.

Analysts say there are no signs that prices will start rising soon and predict flat prices for the whole year.

High-income earners in urban areas, on the contrary, are consuming heavily with the assistance of loans. Those residents uphold individuality, fashion, brand-names, style and quality and tend to spend on high-tech household appliances, electronics, luxury services, education, entertainment and health care.

They usually own both houses and cars and are more prone to making investments.

This kind of consumption behavior may set the standard for the rest of the country. Thus, improving the investment and consumption environment is crucial to tapping the purchasing potential of consumers.

Consumer prices in the first four months of the year were down 0.7 percent year-on-year, compared to the 0.6 percent fall in the first three months of the year, according to the NBS.

Urban consumer prices in April dropped 1.7 percent from a year earlier, while rural prices fell 0.5 percent.

The largest decline was recorded in Beijing, where consumer prices dropped by 3.4 percent.

Despite the downturn in the overall consumption index, the market for commodities targeted at children is thriving. The retail volume of toys in the first four months of this year hit 1.31 trillion yuan (US$157 billion), up 8.4 percent year-on-year.

And the upcoming Children's Day is expected to offer a boon to retail businesses.

Statistics from the NBS show there are 340 million children under the age of 17 in China, accounting for one-fourth of the nation's total population. And 34 percent of them are the only child in the family.

However, the kinds and amount of domestic commodities for children are still limited due to small production scale and poor technology.

Furthermore, domestic brands have trouble battling the fierce market competition brought on by the flood of imported products.

Statistics indicate foreign branded children's garments account for over 50 percent of the domestic market and the percentage is continuously increasing. And over 70 percent of domestic-made garments are of inferior quality.

As a large number of domestic manufacturers of products for children are small-scale village-owned enterprises, the prices of their products are quite high. Such enterprises must cut costs to win a larger market share.

The author is a senior researcher with the National Bureau of Statistics.

(China Daily June 10, 2002)