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If China is to succeed in its effort to shift its export-fuelled economy to one propelled by domestic demand, people like MacArthur Lu may hold the key. Exhibiting his firm's somewhat nondescript suitcases recently at the Canton Trade Fair, where Chinese exporters meet crowds of foreign buyers speaking languages from English and Arabic to Japanese and Korean, Lu outlined plans to crack the home market.
Hangzhou Gema/Fangzheng Suitcases and Bags Co Ltd, of which Lu is director, racks up $10 million in sales a year and turnover is growing by 20-30 percent annually.
None of that comes from China, though, because when the firm was established six years ago, Lu says, "there weren't many travellers".
That's changed, thanks to the rapid and sustained growth that has fattened the pockets of average Chinese and - of particular interest to Lu - made leisure travel more affordable.
"If 10 percent of China can travel, it's almost like having another America full of customers," Lu said.
Next year, his firm plans to dive into the home market with a goal of 10 million yuan ($1.2 million) in domestic sales in 2007.
From there, the sky's the limit in a country of 1.3 billion people.
Lu's dreams are far from rare among vendors at the trade fair, where booths display everything from tea and honey to manufactured wares such as Christmas bric-a-brac, stone garden fountains, camping tents and wicker baskets.
Many of the manufacturers whose bread is buttered overseas were talking up plans to exploit the domestic market.
That's music to the ears of policy makers striving to rebalance the economy towards domestic growth engines, especially consumption, to reduce reliance on investment and exports and stifle US criticism of China's large trade surplus.
Whether Lu will hit pay dirt at home is hard to say.
"We expect domestic demand to play a much more important role in driving overall growth going forward, supported by favourable policy changes that benefit domestic consumption and investment," the investment bank Goldman Sachs said in a report last month.
Others doubt whether Chinese consumers can carry the economy.
Faced with rising health and education bills, and unsure they will get a pension, Chinese families save about a quarter of their disposable incomes.
"There is insufficient domestic demand, really, to support the level of manufacturing that exists here," said Arthur Kroeber, managing editor of the China Economic Quarterly.
"It's picking up, but you have to look at the overall capacity of this economy to absorb stuff.
"The fact of the matter is that per capita GDP is less than $1,500 per year, so that means that the vast majority of people have no money to spend on anything."
Any firm at the fair that tried to shift completely to the domestic market would fail, Kroeber added.
Luckily for most, there were few signs at the trade fair of the export market flagging much, even though China's export growth is forecast to slow next year.
Almost $30 billion in deals were signed during the fair's two-week autumn session, the government said.
That's a healthy portion of the $745 billion in exports a Commerce Ministry think-tank estimates China will ship this year.
Many companies still don't have plans to go domestic.
Joey Xu, of Fujian Putian Municipal New Developing Gift Co Ltd, which makes such American heartland kitsch such as rabbit-shaped porcelain candle holders and candles shaped as flower bouquets, says his products would not sell in the local market.
Ji Xiaojun, manning a booth for a Beijing company that makes cheap electronics, like radios and MP3 players, says the company has gotten used to the ease of collecting money from foreigners.
Buyers at home, he says, "want to sell first, then pay you. Sometimes that takes a month or more".
But for some, the domestic market is already lucrative.
Cai Ruixing, head of Zhejiang Haers Industry and Trade Co, which makes stainless steel hot water bottles sold in 70 countries, has seen domestic business grow from about 5 percent of sales to 30 percent in five years - and that's alongside annual export growth of 50 percent.
"The percentage of the domestic market will keep going up," Cai said.
Home Element Design and Manufacturers Ltd makes lamps and clocks of burnished metal and mirrors. For manager Kevin Yip, the home market is too alluring to pass up.
Like Lu, Yip only exports now. Those exports are growing strongly, but his hopes are pinned on domestic sales that he predicts in five years will account for 30 percent of revenue.
Yip's vision is of a China that will emulate its "Asian Tiger" neighbours, especially South Korea, which is managing - with bumps along the way - to pass the growth baton from exports to the consumer.
"I always think Korea today is our tomorrow," Yip said.

Copyright Reuters, 2005

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