Invigorate Circulation & Expand Consumption

Helping to Sustain a Steady and Relatively Fast

Growing Economy of China

(February 9, 2009)

Ministry of Commerce

Economic growth is driven by final consumption demand. With an ever greater impact of the international financial crisis felt by the real economy, a global economy noticeably decelerating and external demand drastically shrinking, the Central Economic Work Meeting of China has made it clear to premise our economic growth upon the expansion of domestic demand, thus giving rise to a pattern of economic growth driven mostly by domestic demand, consumption demand in particular. Circulation serves as the bridge linking production with consumption. While steering production and providing more effective supply, it is also positioned to foster demand, promote consumption and furnish a large number of jobs. Therefore, invigorating the circulation sector is highly significant in terms of sustaining the steady and relatively fast growth of our economy and securing this year’s economic growth target of roughly eight percent.

The CPC Central Committee and the State Council pay great attention to our work of invigorating circulation and expanding consumption. At the end of last year, the General Office of the State Council has released its opinion concerning invigorating circulation and expanding consumption, in which it has identified the work priorities and policy measures for both the present and the ensuing period of time.

Beginning this year, people’s governments at all levels, especially the commercial authorities have been earnestly following through the general deployment of the State Council. Following the requirement of “rapid deployment, strong moves, targeted measures and solid work”, they proceeded from the perspective of invigorating circulation and provided the commercial and trading circulation enterprises with the right direction, services and promotion in coming up with a series of new measures that are favorable for market exploration and consumption expansion.

First, apply innovative marketing approaches to stimulate consumer interest.

For example, Suning Home Appliances has joined hand with eight banks in rolling out the “easy buy” initiative, enabling consumers to buy home appliances in installments with zero down payments, zero interest and zero handling fees. A lot of trading and commercial entities have taken into account the interests of the manufacturers, consumers and their own, improving the quality of their services and fully leveraging non-price means to stimulate consumption while engaging in discount selling and promotions.

Second, developing marketable commodities to satisfy new consumer demand.

Places such as Shangdong, Anhui and Fujian Provinces have developed quality and inexpensive products in line with the consuming characteristics of the local residents, especially single-function and durable commodities priced moderately to fit in with the rural market. Carrefour in Tianjin regularly invited average consumers to roundtable meetings to better gauge their psychology and expectations while accruing more basic market statistics.

Thrid, aligning production with demand and building a diversified consumer platform.

Places like Jiangsu Province and Shanghai Municipality have been vigorously encouraging market opening moves jointly by the manufacturers and traders through large-size match-making fairs for industrial and commercial businesses. Regions in China are expanding sales through trade fairs, exhibitions and shows, introducing such measures as guided shopping, appointed business meetings and video ordering conferences. Commercial and trading enterprises have also been organized to establish cooperation with exporters in the form of joint sales, commissioning and general dealer arrangement, bringing selected quality and inexpensive commodities with a ready market into their shops. During the Spring Festival, the five cities of Shanghai, Beijing, Guangzhou, Hangzhou and Nanjing put into the market a large quantity of commodities targeting the urban young consumers. And promotional efforts over the internet have generated a 2.5 times increase of electronic coupon downloads during that period year-on-year, delivering a remarkable push to consumption flowing into the catering and recreational industries.

Fourth, reducing business cost and promoting better-economy consumption.

A lot of commercial and trading circulation enterprises have increased the share of their purchase sourced from a unified platform by introducing in-depth market research and fine-tuned business management practices. They have brought to consumers more benefits and encouraged better-economy consumption thanks to their pursuit of maximized reduction in sourcing and operational cost that have in turn led to lower prices.

Judging from the market performance beginning this year, highlighted by the New Year and the Spring Festival, the above measures have seen their initial effectiveness materialized. During the New Year holiday, the one thousand retailers that the Ministry of Commerce has been monitoring as a key focus group have witnessed a 13 percent increase in their sales volume year-on-year. And coming to the Spring Festival, the whole country has registered 290 billion RMB yuan worth of retailing volume of social consumer goods, up by 13.8 percent year-on-year, living up to this year’s “bullish opening” of the market. At present, regions in China are flush with commodities and the local markets are prospering. Businesses are putting up various kinds of promotions and the catering industry for the general public is running at full gear. There is a rich offering of cultural and recreational activities while circulation enterprises are moving on against an adverse market situation. All these have laid a rather solid foundation for residents’ continuous consumption throughout this whole year.

At present, the international financial crisis has yet to reach its bottom while its impact on the Chinese economy is being increasingly felt. A slowing economy has dented residential income increases and sent noises into consumer psychology. Some hotspots of consumption are starting to cool off. Because of an underdeveloped market system in China, particularly in the rural area, the circulation enterprises have to elevate their competitiveness and service level while improvements are expected for the conditions and the general environment underlining consumption for both urban and rural residents.

It needs to be stressed here that there are indeed a lot of favorable factors to promote consumption. Over the years, income for urban and rural residents keeps growing and there is a continuous increase in our deposit balance. Recently, the CPC Central Committee and the State Council have put forth a series of policy measures aiming at stimulating domestic demand. And the positive effects of these measures in expanding consumption will gradually become manifest. Therefore, despite the severe challenges, the commercial system has full confidence in the success of its work to invigorate circulation and expand consumption.

Next, with the leadership and support of governments and relevant authorities at all levels, the Ministry of Commerce will further organize and mobilize commercial authorities and commercial and trading businesses across the board to make full and good use of the various policies for circulation invigoration and consumption expansion, adopting all available measures to move up and on against all odds. We will give full play to the role of circulation in steering production and guiding consumption, promote the expansion and upgrading of consumption by urban and rural consumers, thus contributing duly to sustaining the steady and relatively fast growth our economy. To that end, we will be putting in place the following policy measures:

First, building up the rural circulation network and stimulating rural consumption.

 We will implement on a comprehensive scale the “home appliances into the countryside” scheme so as to promote consumption upgrading in the rural area. We will continue to press ahead with the “market project of thousands of villages and townships”, expanding the coverage of countryside stores and strengthening their ability of unified supply and distribution as well as comprehensive services. We will speed up the establishment of a circulation network for farm produce, build and renovate a number of farm produce wholesale and retail markets, engage in “directly linking the farms with the supermarkets”, and build up a cold-chain system and a rapid inspection system from the farmland to the supermarket. We also will improve the circulation system for agricultural production materials.

Second, strengthening service functions of communities and expanding urban consumption.

We will bring convenient consumption into communities and convenient services into households. The convenient service facilities in urban communities will be improved, a domestic service network built, standard-based renovation of food markets initiated and the building of a general catering network accelerated. We will work to promote the upgrading and replacement of durable goods in the cities, set up the circulation network and market for second hand goods, and actively promotes motor vehicle consumption.

Third, acquiring a better ability in market fine-tuning and ensuring market stability.

We will build up a reserve mechanism for living necessities, speed up the building of warehousing facilities at the central and local levels, and explore the establishment of a business-for-government reserve system while improving formal government reserve arrangements. We will improve the market information service system for urban and rural areas, consolidate such mechanisms as production-to-sales connection, cross-regional transportation and reserve allocation into market, with an aim to enhancing our ability in market contingency responses.

Fourth, promoting the development of circulation enterprises and lowering the cost of consumption.

We will support cross-regional mergers, acquisitions and re-organizations by large-size circulation enterprises so as to make them bigger and stronger. The development of chain-store operations and e-commerce will be accelerated in order to cut back on operational cost and prices. We will also support the growth of small commercial and trading enterprises and improving relevant financial services.

Fifth, developing new consumption models and promoting consumption upgrading.

We will vigorously foster consumption hotspots of all sorts. Great efforts will be committed to spurring consumption at fairs and conventions as well as during holidays and festivals. Circulation enterprises will be steered to intensify their promotional efforts and improve their promotional approaches. We will coordinate with the relevant authorities in drafting out the supporting policy for using bank card for payments, thus further increasing credit and debit consumption. Credit sales will also be greatly developed.

Sixth, improving the market environment in real earnest and promoting safe consumption.

We will support the relevant authorities in fostering a consumption environment with quality and safe products while improving the market information system and public service platform for supervision in the circulation sector. We will implement projects in relation to providing “safe vegetables”, “safe meat” and “safe alcoholic drinks”. Continuous efforts will be dedicated to commercial administrative enforcement, with relentless crackdowns on such illicit violations as the selling of counterfeit and shoddy commodities and business fraud. We will carry into greater dimensions the campaigns of “publicity month of good credibility for good business” and “no fakes for stores nationwide”. Regional barriers will be removed to encourage fair dealings between the retailers and suppliers.