Consumption, services push China toward sustainable growth

BEIJING - Zhang Kailan spends more than half of his 20,000-yuan (about $3,268) monthly salary on e-commerce sites.

The 24-year-old IT manager at a wedding planning company in the Southeast China city of Fuzhou calls himself a "hand-chopping online shopper," joking that he has spent so much money online that he should chop his hands off.

Though he jokes about quitting, the Chinese government is betting on tech-savvy shoppers like Zhang to bolster a slowing economy.

Due to shrinking growth and changing demographics, China must swap its traditional growth model -- with its heavy reliance on exports and investment in real estate and factories -- for a new one based on consumer spending and innovation.

New numbers, new normal

The economic transition has faced a number of problems, including a property market downturn, deflationary risk, stock market volatility, global financial turmoil, and added pressure on growth.

China set its 2015 economic growth target at "around 7 percent," the lowest in more than a decade. The GDP for the first half of the year hit the target, with growth up 7 percent from the same period last year, according to data from the National Bureau of Statistics (NBS) released Wednesday.

Doomsayers expect the slowdown to continue, leading to an eventual collapse. But China's policymakers believe the economy is entering a new stage of slower but more resilient growth, which President Xi Jinping has called the "new normal."

The essence of the "new normal" is not fast growth, but an improved economic structure that relies more on the services industry, consumption, and innovation.

Services, consumption drive growth

The latest data show the services sector has become the biggest driver of economic growth, said Qu Hongbin, chief China economist at HSBC.

The sector expanded 8.4 percent in the first half and accounted for 49.5 percent of GDP.

Wang Tao, chief China economist at UBS, noted the uptick in the services sector was helped by both a strong recovery in property sales in the first half and a buoyant equity market, which sent the key Shanghai stock index to a peak in mid-June and then crashed until supportive government measures helped arrest the slide.

Consumption also played a bigger role in boosting growth, accounting for 60 percent of GDP growth in the first half, 5.7 percentage points higher than a year ago and almost double the contribution from investment.

"The demand structure is changing in line with our policy intentions, and the structure is getting better," NBS spokesman Sheng Laiyun said at Wednesday's press conference.

E-commerce, tech transform economy

Online shoppers such as Zhang are helping steer the shift toward consumption. China's e-commerce market reached 13 trillion yuan last year, and online sales surged 39.1 percent in the first half of 2015, three times faster than overall retail sales.

"The Internet has become a part of my life," Zhang said, adding that, unlike his parents, his generation lives more for the present and would rather consume than save.

Output of hi-tech industries maintained double-digit growth in the first half, nearly five percentage points higher than the overall industrial sector.

However, analysts said that the economy is still recovering and it will take time for new growth engines to fully take over, so more easing measures are needed to counter a deceleration of traditional growth drivers and sustain the recovery.

Wang expects the government to enhance funding for infrastructure investment in the second half and further lower the benchmark interest rates.

"The government cannot relax its efforts to stabilize growth," said Song Yu, Goldman Sachs/Gaohua senior China macroeconomist, adding that policymakers must continue to boost domestic demand in order to achieve the full-year growth target.