By Yu Nan

Lin Shanshans Singles Day started with clicks of the mouse at midnight.

The 28-year-old shopper who lives in Beijing said she searched for online bargains in advance and stored her favorite items in website shopping carts. This was to avoid wasting any time hunting down bargains when a 24-hour half-price sale kicked off last November 11， which is known as Singles Day in China. The shopping holiday was started by e-commerce giant Alibaba Group， which operates Taobao.com and Tmall.com.

Staying up until 2 a.m.， Lin ended up spending more than 4，000 yuan （$793） on two overcoats， three pairs of boots and bedding. Tens of millions of Internet users like Lin took advantage of the great deals on offer. By 11 a.m. that day， trade volume of Alibabas two online shopping sites reached 7.9 billion yuan （$1.25 billion）， exceeding the 5.2 billion yuan （$825 million） spent on Singles Day in 2011. And their 24-hour sale on that day registered 19.1 billion yuan （$3 billion）. This figure is more than 50 percent higher than that for total online sales in 2011 on the American Cyber Monday， which falls on the first Monday after Thanksgiving， and also features attractive online sales.

Demand drives growth

Online purchases are proving to be a good indicator of Chinas domestic consumption. In line with the increased spending on Singles Day， Chinas retail and catering industries saw a surge in sales during the countrys 2012 eight-day National Day holiday. During the holiday， sales by major retail and catering enterprises rose to 800.6 billion yuan （$127 billion）， 15 percent higher than the same period in 2011， according to statistics released by Chinas Ministry of Commerce. The countrys 119 major scenic destinations were visited by a total of 34.25 million tourists， a 20.96 percent year-on-year increase. Tourism income surged to 1.77 billion yuan （$281 million）， a nearly 25 percent increase from 2011， according to the National Tourism Administration.

While some experts are worried about a possible hard landing， the better-thanexpected figures reveal the strong spending power of Chinese consumers.

Last years upward trend in domestic consumption is encouraging. Data from the National Bureau of Statistics showed that in the first three quarters of 2012， consumption contributed over 55 percent to Chinas economic growth， exceeding the contribution from investment for the first time since 2006. Growth in domestic consumption is key to Chinas economy， as the country faces weaker export and investment demand.

“Consumptions contribution exceeding that of investment sends a signal that China has made further achievements in economic restructuring，” said Shen Xinmin， an economist at South China Normal University. “China has been rebalancing its economy to rely more on domestic demand.”

This view is echoed by Hou Yongzhi， Director of the Development Strategy and Regional Economy Department at the State Councils Development Research Center.

Hou believes that China needs to make a gradual adjustment from an export- and investment-driven growth model to rely more on domestic consumption， while still maintaining sustainable economic growth.

In the long term， boosting consumption will play a major role in sustaining stable economic growth， outpacing investment and exports. Consumption in China， according to 2010 World Bank data， accounted for only about 35 percent of the countrys GDP， far below the United States 71 percent， Germanys 58 percent and Japans 60 percent， and still lower than the world average of 61 percent. Chinas consumption potential is enormous， and has yet to be fully realized， said Liu Yuanchun， Deputy Dean of the School of Economics at Renmin University of China.

Consumption differences

The advent of increased consumer spending in China has made many companies realize that selling to Chinese consumers， who show important regional differences in their buying habits， is an increasingly complex business. Max Magni， a principal consultant at McKinsey& Co.， has underlined that it will be more important to cater to those differences.

According to figures from Alibaba， the companys sales rose 98 percent in central and west China in the first six months of 2011， exceeding its growth in eastern areas. The online purchasing platform shows Chinas great consumption capacity， especially in thirdand fourth-tier cities and less developed regions， and offers a channel to balance supply and demand.

“Brands like Uniqlo and Zara that offer affordable prices are very popular among young customers in the third- and fourth-tier cities， but it is currently difficult for these consumers to purchase these goods through traditional retailers. Online shopping is able to help exploit this groups consumption potential，” said Wang Yilei， Vice President of Tmall.com.

“Online shopping is not only a rival of traditional retail， but also a counterpart. It makes the whole market bigger，” said Guo Tianyong， Director of Chinas Banking Research Center at the Central University of Finance and Economics. “The rise of e-commerce will also lead to a new round of reshuffling in traditional retail.”

Rapid urbanization in China will continue to boost consumption. The generation born in the 1980s has become a major force driving consumption in housing， telecommunications， weddings and baby care. The group is more willing to accept new products and follow fashions and trends， and is more interested in spending money on social gatherings， fitness， travel， interactive games and other online products. This generation of consumers has a totally different attitude than their parents， and has a growing influence on the structures of social consumption.

Releasing growth potential

Although domestic consumption is contributing more to economic growth， experts point out that there are many factors affecting consumer demand， including tax and interest rate changes.

A key to unleashing domestic consumption is promoting structured tax cuts and lowering the tax burden on citizens， said Liu Yuanchun.

In the short term， China needs to improve fiscal， tax and credit incentives to encourage consumption， and also focus on improving its consumption environment and fostering consumption growth by developing new ways to consume， such as online shopping.

But in the long term， Liu believes that the government should boost domestic consumption by deepening income distribution reforms， expanding employment opportunities， and improving the nations social security system.

Yet， sustainable economic growth cannot rely on a consumption-driven model alone. China must develop a new economic growth pattern based on balanced development that is funded by domestic consumption， investment and exports， according to Zhang Jun， Director of the China Center for Economic Studies at Fudan University in Shanghai. There are different stages of economic development. Consumptions contribution to Chinas GDP will substantially increase only if the Chinese economy maintains rapid， sustainable growth over the next decade， the middle-income population continues to increase and the service industry continues to grow.

By 2020， China will be the worlds second-biggest consumer market after the United States， according to McKinsey & Cos Annual Chinese Consumer Survey. If policy adjustments can effectively boost consumption， the increase in purchasing power may far exceed expectations in the coming years.