China's growth is planted in its rural roots

The famed ‘Chinese demand' has assumed almost mythic proportions — the invisible appetite that will steer the local and global economy out of crisis. But can rural China really fill the decline in global demand as hoped? After the financial crisis of 2008, China made constant efforts to reduce its dependency on foreign demand by attempting to raise an army of rural consumers, presumably with an insatiable appetite for goods and services. But agrarian China is hardly a match for high-consumption Western economies and after three years of subsidies, investment and wage revision, the Chinese manufacturing sector is faltering and also inevitably its stock markets. Unmistakeable signs of a weak global economy and less-than-adequate local demand shrivelling up local manufacturing hit the bourses hard last week. Stocks on the Chinese mainland dropped in yet another long losing streak. The domestic consumption story has so far been credible. For much of the year, consumption saw a large leap. Retail sales for the first three quarters of 2011 were up 17 per cent year on year. Prosperity in urban and rural markets was reflected in retailing sales of consumer goods, which rose to 15.7 trillion yuan (Dh8.9 trillion) last year from 3.8 trillion yuan in 2001. But now, the question is whether domestic demand can maintain its growing momentum. The rising disparity in income between urban and rural areas is a major cause for concern. In such a case, will it be possible for a country of low-income citizens to generate enough demand to sustain the behemoth that is China's manufacturing? The good news is that consumer confidence remains high, especially in the rural segments. According to a survey by an international agency, consumers in the rural areas are said to be have the highest level of confidence, followed by citizens of more prosperous cities, such as Beijing and Shanghai. How steadily this confidence translates into actual buying power and desire, will decide the fate of manufacturing industries and by extension China's weak stock markets.