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Last Updated: Tuesday, 12 September 2006, 08:57 GMT 09:57 UK
Wages boost Chinese retail sales
Shoppers in Shanghai
China wants domestic spending to bolster the export-driven economy
Chinese retail sales grew by 13.8% in August strengthened by higher rural and urban incomes, according to figures from the National Bureau of Statistics.

The figure is up from July's annual rate of 13.7% and probably will underpin optimism that China's booming economy is becoming more balanced.

China is keen to boost domestic spending, and reduce its dependence on exports and investment spending.

Better public services and job security will be key factors, analysts said.

'Unlock wealth'

If public services improve then workers would not have to save their money to pay for equivalent private-sector services, giving them more disposable income, analysts explained.

To unlock that wealth you need to make education and healthcare cheaper and improve the ways consumers can finance spending
Tai Hui, economist with Standard Chartered Bank

At the same time, a fear of unemployment is prompting Chinese workers to save their money, and the level of savings is currently on average around 30% of total household incomes.

"In order to unlock that wealth you need to make education and healthcare cheaper and also improve the ways consumers can finance their spending," said Tai Hui, an economist with Standard Chartered Bank.

Disposable income in urban areas has risen by 10.2% in the first six months of 2006 compared with a year earlier, the statistics office said. In rural areas, disposable incomes have seen a 11.9% increase from the previous year.

The government is focusing on increasing rural wealth by abolishing a 2,600-year-old agriculture tax, cutting school fees and improving infrastructure.

Macroeconomic controls

Also on Tuesday the Bureau of Statistics released data showing China's rate of investment on factories and property, as well as other urban fixed assets, declined slightly in August.

The figures show that government measures to stop the trend of huge bank loans and large construction projects, in a bid to quell inflation, seem to be having an impact.

"After months of macroeconomic controls, we begin to see some positive changes, with an obvious slowdown in the growth rate in fixed-asset investment in the past two months," said Qiu Xiaohua, the director of the bureau of statistics.

While the amount spent on fixed assets in August marked a 21% increase on a year earlier, this was lower than July's comparative rise of 27.4%.

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