Bloomberg News

China Rural-Income Gains Aid Shift Toward Consumption

January 30, 2013

China Rural-Income Gains Aid Economic Shift Toward Consumption

A farmer works in a field in Pinggu, on the outskirts of Beijing, China. Photographer: Tomohiro Ohsumi/Bloomberg

Chinese incomes rose faster in the countryside than in cities for a third straight year in 2012 as migrant workers boosted their pay and the government strengthened the social safety net.

Rural per-capita net income advanced 10.7 percent, compared with 9.6 percent for urban dwellers, partly on the rise in migrant laborers and their wages, the National Bureau of Statistics said Jan. 18. Rural residents’ income from benefits payments rose 21.9 percent, almost double the urban pace, as the government boosted its budget for health-care handouts.

Rural spending power has been lifted by wages earned by peasants working in cities, underscoring the broader benefits of the urbanization drive championed by incoming Premier Li Keqiang. Spreading gains in consumption would help sustain a growth rebound and reduce the economy’s reliance on exports, which rose last year at less than half 2011’s pace.

“Rising rural incomes should definitely help boost consumption and aid rebalancing,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “Growth will gear down a bit as rising labor costs diminish investment incentives, but such consumption-led expansion will be more sustainable.”

The trend may persist for a while as a declining working- age population helps push up migrant laborers’ pay and the government keeps improving social safety-net funds including for health care in the countryside, said Zhang, who previously worked for the International Monetary Fund.

Retail Sales

Rural per-capita net income, which includes migrant workers’ pay, rose more than that of urban residents in 2010 for the first time since 1997. Retail sales in rural regions rose 14.5 percent last year, exceeding the gain in urban areas, which increased 14.3 percent, for the first time in three years. That compares with 17.2 percent growth for urban consumption in 2011 and a 16.7 percent advance for rural dwellers.

Rural spending, at 2.78 trillion yuan ($447 billion) last year, was still less than one-fifth of what urban households spent. Urbanites account for about 52.6 percent of China’s population of 1.35 billion, according to the statistics bureau.

The central government’s transfer-payment budget for rural health-care coverage in 2012 increased 36 percent to 106.3 billion yuan, according to the Ministry of Finance.

“Income and wealth reallocation favoring rural households should definitely help boost consumption, as the lower-income households normally have higher propensity to consume,” said Ren Xianfang, a Beijing-based analyst with researcher IHS Inc. “This should help rebalancing.”

Registration System

The situation highlights the urgency of measures such as overhauling a household-registration system that keeps 642 million rural dwellers from permanently joining the urban workforce, limiting their ability to contribute to the economy.

The State Council, or cabinet, said in February 2012 it will implement a policy of helping people register as urban residents in small and medium-sized cities and small townships and ensure equal benefits for countryside residents who have an urban registration. At the same time, the government will continue to “reasonably control” the population of bigger cities including Beijing and Shanghai.

China had about 230 million people by the end of 2011 who lived in cities without permanent residence, Chen Xiwen, China’s top rural-policy adviser, said Nov. 29. The Chinese government has a huge challenge in providing education, health care and jobs for these people, Chen said.

Major Tasks

Strengthening consumption’s role in boosting economic growth is one of the major tasks this year, the government said after the annual central economic work conference in December. Stephen Roach, former non-executive chairman for Morgan Stanley in Asia, said in a Project Syndicate opinion article this week that “without rebalancing and reforms, the days of the automatic Chinese soft landing may be over.”

A resurgence in optimism for China’s economy has given stocks a boost. The Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, advanced 20 percent through yesterday since its 2012 low on Dec. 3, a threshold used by some investors to signal a bull market. The index fell 0.1 percent as of 1:08 p.m. local time today.

While economic growth for the full year was the weakest since 1999, expansion rebounded in the fourth quarter to a 7.9 percent year-on-year pace following a seven-quarter slowdown.

Gree Electric Appliances Inc. (000651), China’s biggest air- conditioner maker, may benefit from growing sales in the countryside, China International Capital Corp. analysts said in a Jan. 21 note. Gree said Jan. 18 that its 2012 profit may have increased 41 percent.

Japan Sales

Elsewhere in the Asia-Pacific region, Japan’s retail sales rose 0.1 percent last month from November, less than economists forecast, a report showed today. South Korea’s industrial production unexpectedly expanded in December from November as domestic demand offset weakness in exports. New Zealand building approvals surged to a 4 1/2-year high in December, adding to signs of a revival in the property market.

In Europe, Spain will release gross domestic product data today, with a Bloomberg survey showing the economy contracted last quarter. GDP reports are also due in Belgium and Lithuania, as are reports on Italian business confidence, euro-area consumer confidence and U.K. mortgage approvals.

The U.S. economy probably expanded at a 1.1 percent annualized rate in the fourth quarter, the weakest in almost two years, a Bloomberg survey showed before figures due today.

Bigger Cake

Even with the gains in China, per capita rural net income last year was 7,917 yuan, less than a third of per capita urban disposable income of 24,565 yuan, statistics bureau data showed. Ma Jiantang, head of the agency, said Jan. 18 that China must on one hand, “make the cake bigger, and on the other hand, we must do a better job in sharing the cake.”

Under President Hu Jintao and Premier Wen Jiabao, both set to retire in March, the government since 2003 has abolished agriculture taxes, expanded health-care coverage and increased minimum purchase prices of grains under efforts to boost rural development.

The difference between rural and urban income growth was smaller in 2012 than the 3 percentage-point gap in 2011.

“As the narrowing of the gap in the pace of gains shows, more needs to be done to reduce income disparities, and I expect the new government to move in this direction,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.

--Zheng Lifei. With assistance from Zhou Xin in Beijing and Stephanie Phang in Singapore. Editors: Scott Lanman, Rina Chandran

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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