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Last Updated: Tuesday, 13 June 2006, 11:03 GMT 12:03 UK
Chinese shoppers bolster economy
Chinese shopper browses the jeweller's window
How much is that necklace in the window?
Chinese retail sales have jumped 14.2% during May, the fastest growth in a year and a half.

The official figures strengthen the view that domestic demand is starting to catch up with export sales.

The figures also suggest that Beijing can rein in investment, which it fears is growing too strongly, without hurting private consumption.

China has introduced measures to curb the property market, but was worried about knock-on effects in the shops.

Forecasts topped

Analysts said that retail sales were now likely to keep improving, which would be welcomed in Beijing.

"The implication is that the government can afford to tighten monetary policy further, which will not endanger the whole economy," said Jun Ma, economist with Deutsche Bank in Hong Kong.

The effort to boost consumption is going to work slowly and can only marginally affect the trade balance. It will take two to five years to balance China's trade
Jun Ma
Economist, Deutsche Bank

May's figures from the National Bureau of Statistics topped market forecasts. Figures for April and March were 13.6% and 13.5% respectively.

China's economy is expanding at a rapid pace, growing by 9.9% in 2005.

Growth has now been about 10% for three consecutive years. Most of that has been driven by capital investment in such items as office buildings and roads, and foreign demand for Chinese-produced goods.

Under US pressure

The government wants to rebalance the economy by boosting domestic consumption, which accounts for two-thirds of economic activity in many developed countries.

It has introduced measures including tax breaks, increased minimum wages and low interest rates to promote spending.

Beijing is under pressure from the US to speed up the appreciation of the yuan and narrow the trade deficit between the two countries, by exporting less and importing more.

But Mr Ma said structural change was not a quick process.

"The effort to boost consumption is going to work slowly and can only marginally affect the trade balance. It will take two to five years to balance China's trade," Mr Ma said.


SEE ALSO
China's economy continues to soar
25 Jan 06 |  Business
China sees trade surplus triple
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China lifts annual growth figures
09 Jan 06 |  Business
IMF warns on cost of China's boom
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