With the trend of online shopping, delivery businesses are undergoing rapid development, unleashing the potential of consumption demand. In the first three quarters of 2016, more than 21 billion express packages were delivered, up 54 percent year-on-year.

After the 2008 financial crisis, global demand declined sharply, and China experienced weakened demand for its products. Moreover, it is faced with increasing pressure from resource shortages and environmental degradation.

In this context, China is at a crucial juncture of transforming its economic growth pattern from one driven by investment and export to a model driven by consumption. However, due to the inertia of the traditional pattern and the stiffness of the economic structure, realizing the transformation will be a slow process that cannot be accomplished in one stroke.

Promoting economic growth
According to data provided by the National Bureau of Statistics, the contribution of consumption to GDP growth stood at 71 percent in the first three quarters of 2016, a year-on-year increase of 13.3 percentage points compared with 2015. Consumption became the greatest driving force for economic growth in 2016.

To transition to a consumption-driven development pattern, China has introduced a range of measures in recent years, including enhancing purchasing power, stimulating consumption demand, improving relative regulations, and protecting the rights and interests of consumers.

As a result, consumption is playing a stronger role in driving the Chinese economy forward. Consumption’s contribution to GDP growth reached 50 percent in 2013 and 50.2 percent in 2014 while rising to 57.7 percent for the first three quarters of 2015. According to estimates by British weekly magazine The Economist, China’s individual consumption expenditure reached $3.2 trillion in 2016 and will rise to $5.6 trillion by 2020.

Consumption of updated commodities has grown faster, and there have appeared new highlights. In the first three quarters of 2015, the total expenditure on domestic tourism reached 2.56 trillion yuan, up 15.1 percent from a year earlier. In addition, the nationwide promotion of the “Internet Plus” strategy provided a new driving force for consumption, further unleashing the potential of consumption demand. Online retail revenues amounted to 2.6 trillion yuan, up 36.2 percent from a year earlier. The growth rate of online retail revenues remained above 35 percent for 19 consecutive months.

In the first three quarters of 2016, expenditures on commodities related to communications and housing grew rapidly. Spending on telecom equipment witnessed year-on-year growth of 12.7 percent; furniture, 13.9 percent, and building and decoration materials, 15.4 percent. Total online retail revenues reached more than 3.4 trillion yuan, an increase of 26.1 percent year on year.

In particular, online retail revenues for physical commodities rose 25.1 percent to almost 2.8 trillion yuan, accounting for 11.7 percent in total retail sales of consumer goods in the period. There were more than 21 billion express packages, with a year-on-year growth rate of 54 percent, which is eight times the GDP growth rate over the same period. Earnings of delivery businesses totaled more than 270 billion yuan, with a year-on-year growth rate of 43.9 percent, six times the GDP growth rate.

Structural changes
Consumption became the most important factor supporting economic development in the first three quarters of 2016. It should be noted that this indicates changes in the economic structure.

The sharp rise in consumption’s contribution to GDP growth may be a result of weakened investment and export demand. In the first three quarters of 2016, China’s export demand declined from a year earlier, and there was a slowdown in the growth rate of investment. Fixed-asset investment, excluding the agricultural sector, continued to cool, growing 8.2 percent year-on-year, down from 10.3 percent in 2015.

In addition to consumption, investment and export contributed only 29 percent to GDP growth, which indicates that the Chinese economy is still experiencing weak domestic investment and deteriorating external demand. Therefore, the steep rise in consumption’s contribution is not a result of drastic increase in total consumption but a result of steady growth in total consumption against slow growth or even a downturn in investment and export. The government should better understand the real reason in order to formulate effective policies and strategies to further promote economic development.

Moreover, it is necessary to further explore the accuracy of the data regarding consumption’s contribution. Consumption constitutes an economic variable that is stable relative to others because it tends not to rise or fall dramatically.

From the beginning of 2015 to September 2016, total retail sales of consumer goods fluctuated slightly in a range between 2.27 to 2.79 trillion yuan. Considering this, consumption’s contribution to economic development can be expected to increase steadily. Thus, it does not seem reasonable to overstate the significance of substantial increase in consumption’s contribution to GDP growth in the first three quarters of 2016.

Consumption’s contribution may not have risen that much if the short-term surge in housing demand created by stimulus policies were excluded from calculations. However, this remains to be confirmed. For the first three quarters of 2016, housing prices rose significantly, and home sales jumped. Investment in real estate grew at a nominal rate of 5.8 percent or an actual rate of 7.1 percent.

During the period, investment in residential housing grew 5.1 percent. The total size of commercial real estate that was sold rose 26.9 percent year on year, while that of sold residential property grew 27.1 percent. Total sales value for commercial real estate reached more than 8 trillion yuan, up 41.3 percent year on year, while residential property sales grew 43.2 percent. All in all, more than 10 trillion yuan was invested in real estate, up 15.5 percent year on year.

Smooth increase
When weak investment and export as well as other short-term factors, such as the surge in housing prices and demand, are excluded, the real contribution of consumption to GDP growth may not be as sharp as the data has shown.

In fact, consumption is a smoothly increasing variable. Upgrading and rapid growth of consumption are the result of the adjustment of income distribution, the expansion of the middle-income group to account for at least half of the Chinese population, and the changes in labor and asset income.

Further reform is also needed to reduce economic risks. In addition, it is necessary to deal with the problem of excessively priced housing. The income from land sales accounts for a large proportion of local governments’ fiscal revenue. And local officials rely on land sales and construction to achieve GDP growth. Therefore, it is necessary for the government to roll out further reforms of the land management and financing system.

In short, the Chinese economic growth model has yet to be fundamentally transformed. China still has a long way to go before consumption really becomes the major driving force for its economic development.

Zang Xuheng is director of the Consumption and Development Institute at Shandong University.