In the Tibetan monastery town of Xiahe, Gyelyanjia is visiting for a festival and taking the opportunity to do some shopping.

He has spent 20 yuan ($3) at Ding's electrical appliance shop on a heat-belt, which he can fill with boiling water and strap around his waist to ward off the bitter winter chill on the Himalayan plateau.

The 66-year-old grins: "I already have a television at home. But I would like a washing machine and a fridge. I hope to buy those next year.”

Timothy Geithner harbors similar hopes. The US Treasury Secretary is counting on hundreds of millions of Chinese like Gyelyanjia to spend more and save less.

That way, Chinese factories would produce more for domestic consumption and less for export, helping to narrow the trade imbalances that are destabilising the global economy.

Chinese consumption is, in fact, strong. It has grown by more than 9 percent a year, after adjustment for inflation, over the past decade. China overtook the United States in 2009 as the world's leading automobile market. The real-estate market is on Are, swelling demand for appliances and furniture. China is No. 2 in sales of luxury goods.

There are no luxuries for sale in Xiahe, a rapidly developing town in the western province of Gansu and home to Labrang monastery, the largest outside Tibet.

Tibetans wrapped in long woolen robes, their hair falling in long plaits, crowd the broad pavement lined with shops along the main street leading to the sprawling monastery. Monks, taking a break from their prayers, chat on mobile phones on their way to the tea house or to buy a pair of handmade felt boots.

Renqing, 33, who like manyTibetans uses only one name, watches over her two-year-old daughter, sleeping in her stroller outside a shop. "Life is difficult for us. I only have enough money to feed and clothe my family."

Still, she admits, she has a washing machine, a fridge, a television and a computer at home. And, of course, a DVD player. But it's not enough. "If there's one thing I dream of having, it's Tibetan religious art. I wish I could buy statues to put in my home."

The Ding family are Hui minority Muslims. Mrs Ding Yuying gestures around her store filled with freezers and televisions. "Business is up 50 percent this year because the government has given a subsidy to farmers to buy electrical goods," she said.

Yet appearances are deceptive, at least through the prism of economic statistics.

INVESTMENT TRUMPS CONSUMPTION

Spending might be sturdy in China, but

investment has been off the charts. As a result, consumption was just 35.6 percent of Gross Domestic Product in 2009, from 46.1 percent a decade earlier - and that was helped by a massive government stimulus to counter the global financial crisis.

The task for China's policymakers is to lift that proportion by boosting wages, speeding up urbanisation and building a social safety net so people do not need to save so much for a rainy day.

"Consumption will be the story of the next five to 10 years, and because we're talking about a fifth of humanity, it will have a huge impact on global business," said David Gosset, director of the Euro-China Center for International and Business Relations at the China Europe International Business School in Shanghai.

Still, he doubted China's consumption share would reach the roughly 60 percent rate of the European Union, let alone the 70 percent rate of the United States. "The Chinese will never consume as we do in the West, especially in the US."

The opportunities for retailers are nevertheless mouth-watering, if they can adapt their sales methods to thousands of fast-

growing towns across China where budgets and tastes are a world apart from the bright lights of Beijing and Shanghai.

Patrick Kung, Greater China chairman for Koninklijke Philips Electronics NV sees huge growth in the coming decade in what he calls China's "emerging markets" — lower-tier towns and the countryside — while coastal cities will gradually become saturated.

"A smart company will be proactively investing and looking how to tap those markets," Kung told a conference organised by the European Union Chamber of Commerce in Beijing.

Scenting the potential profits, many multinationals are doing exactly that.

General Motors, the biggest overseas automaker in China, is busy rolling out affordable models aimed at smaller cities that it says could account for 60 percent of its business within five years.

"Those big coastal cities are rapidly becoming less than a quarter of our business and the real growth is in what we call Tier-3, Tier-4 cities," Terry Johnsson, vice president of GM's China operations, told the news agency.

German sports goods company Adidas

AG plans to open more than 2,500 stores in smaller Chinese cities by 2015.

Foreign and domestic retailers in sectors from hotels to instant noodles are reporting surging sales from lower-tier cities, which are benefiting from a wave of corporate investment and government measures to support consumption, according to Jing Ulrich, chairman of China equities and commodities at JP Morgan.

"If you're not doing well, it's because you have an execution problem," she said. ”1 think in the next 3-5 years we're going to see the interior really taking over as a major growth driver for China's overall economy. ”

VESTED INTERESTS

The logic behind aggressive expansion plans sounds compelling. But they will pay off only if the Communist Party is prepared to overturn China's growth model. That means taking on vested interests that thrive financially and politically from the way the economy is run, from well-connected property developers and their friends in local government, to the Party bosses of banks and big firms who wield immense power in their industries.

TO BE CONTINUED