Sales grew year-on-year by 8.8 percent in August to 314.4 billion yuan (US$37.9 billion), the National Bureau of Statistics announced Monday.

The growth rate was slightly higher than the 8.6 percent for July and the rates for first seven months of the year.

August's small increase was partly the result of increased spending on entertainment and gifts by students during their summer holidays and also on the materials for the new school year, said the bureau.

Promotions launched by shopping centres, department stores and retailers also pushed up consumer spending, it explained.

The bureau said spending by city dwellers contributed most to the retail sales in August, with their spending rising year on year by 9.9 percent to 201.5 billion yuan (US$24.3 billion).

Hu Shaowei, a senior economist with the State Information Centre, said: "The retail sales growth will continue to be stable and the disparity between the urban and rural markets will continue this year."

China could not expect a higher growth rate (in retail sales), because a number of demand-stimulating consumption policies for large "items," such as housing and cars have yet to be worked out, Hu said.

To stimulate spending, the central bank - the People's Bank of China - has cut interest rates eight times in the past few years.

The vast rural populace, which makes up some two-thirds of the country's population, do not have enough money to buy goods, because of the small earnings from limited farmland, the slow progress of urbanization and the little chance for rural labourers to work on equal footing with the urban workers in cities, said Li Xiaochao, a senior official with the National Bureau of Statistics.

The increasing gap between the rich and the poor consequently has a negative effect on the consumer goods market, said Li.

Ni Hongri, a senior researcher with the Development Research Centre under the State Council, said the traditional idea of earning money before spending it limited people's enthusiasm for consuming.

"Chinese people do not have a tradition of using consumption credit," Ni said.

The government needs to take further measures to increase income and thereby stimulate the consumer goods market, Hu said.

He was full of praise for the practice of the "tax-for-fees" reform this year, which aims to increase the income of the rural population.

He said the government should manage to improve the consumption environment in rural areas.

It was not only the low income in rural areas that was holding back consumer spending: The backwardness of the infrastructure, the high price of electricity and low-quality telecommunication facilities all limited consumption, continued Hu.

The government should better publicize the current reforms including those in respect of housing, medicine, pensions and education, so that public confidence in the future improved, Hu said.

The government should also encourage consumption by urging banks to offer more credit, especially for cars and housing, he added.

(China Daily September 17, 2002)