Can China Change Its Spending Stripes?

Can China really pull off a fast and smooth transition from an industrial, export-led economy to one fueled by internal demand? Or will its economy and market lose steam as the bank lending explosion pulls back?

Retail sales have held up much better in China this year than in other big economies, growing at a real 15.9% in March year-on-year, according to Global Insight. The strongest consumer spending figures are coming from inland and lower-tier cities rather than from the traditional growth powerhouses clustered around the Yangtze and Pearl River deltas.

A China Confidential survey assessing consumer spending intentions among an estimated 64m middle and upper income households in 189 cities in March showed a much higher propensity to spend in rural cities. Of course China has more than one hundred cities with a population exceeding one million people.

One sign of this trend is that Wal-Mart (WMT) plans to increase the number of its stores from five to nine in Chongqing, a city 2,500km up the Yangtze river from Shanghai. This will mean it has more stores in Chongqing than in Beijing or Tianjin.