China retail sector still OK?

Many think the so-called bursting of China's stock and property market bubbles, together with high inflation, will kill or would have killed its retail sector. Well, take a look at the article below:

China's retail sales up 23.2% in August

2008-09-12

BEIJING, Sept. 12 (Xinhua) -- Domestic retail sales kept the growing momentum in previous months and registered an increase of 23.2 percent in August, said the National Bureau of Statistics (NBS) on Friday.

The growth rate was 6.2 percentage points higher than the same period last year and 0.1 percentage points lower than the previous month. The August retail sales totaled 876.8 billion yuan (128.9 billion U.S. dollars).

The retail sales kept growing despite the drop in consumer price index (CPI), which reflected a strong consumption in domestic market, said Zhang Liqun, a researcher with the Development and Research Center of the State Council.

It brings China's retail sales of consumer goods in the first eight months of this year to 6,843.9 billion yuan, up 21.9 percent, compared with a 15.7 growth recorded during the same period last year.

The drive behind the retail sales is the government policies inpast years to increase income and promote domestic demand, said Zhang. But whether the trend would continue is yet uncertain.

Negative factors might dampen sales, which included reduced employment and income caused by bad enterprise performance, and weaker consumer confidence caused by economic slowdown. Urban consumption jumped 23.9 percent year on year to 601.5 billion yuan, while rural residents spent 275.3 billion yuan, up 21.8 percent.

Whole sale and retail sales hit 736.1 billion yuan, up 23.2 percent, while hotel and catering industry reported 124.5 yuan, up26.3 percent. Retail sales in other industries reached 16.2 billion yuan, up 2.6 percent.

Automobile sales grew by 19 percent, while oil and related products jumped 49.4 percent.

(Source: Chinaview)

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Still don't believe? Think the figures were boosted by inflation effects? Think again....

CPI drops to lowest in 14 months

BEIJING, Sept. 11 -- Inflation eased to its lowest level in August since June last year, giving the government more policy leeway to prevent an economic slowdown. The consumer price index (CPI), the main gauge of inflation, rose 4.9 percent year-on-year, compared to 6.3 percent in July, the National Bureau of Statistics (NBS) said yesterday. The CPI has been sliding since May, but still many economists were caught by surprise by last month's drop because they had forecast it to be above 5 percent. The month-on-month fall was only 0.1 percent. But last month's producer price index (PPI), a gauge of factory gate inflation, rose a record 10.1 percent year-on-year, after jumping 10 percent in July.

Nevertheless, the low CPI figure gives the government "more policy room to sustain growth," Citigroup economist Ken Peng said. He suggested the authorities consider further policy changes favoring growth, which could shift to full gear next month. Economic growth has been slowing since the second quarter of last year, when the government adopted monetary and credit measures to rein in inflation and prevent the economy from overheating further. Yet economists began warning of a recession since the beginning of this year, especially because the country's export sector, a key growth engine, started losing steam on weaker foreign demand.

The government responded it would strive to maintain a stable economic growth this year, leading to speculation that it would soon ease the tightening measures. But any step to stimulate the economy, such as lower interest rates or faster loan growth, risks spurring demand and stoking inflation again. "Unless there's an abrupt slowdown, there's no need for a major change in the marco-control measures," said Lian Ping, an economist with the Bank of Communications. "The current 10 percent GDP growth is largely seen as acceptable."

The CPI rise is likely to stabilize around 5 percent during the rest of the year, he said, because food prices may continue to drop. Inflation fell last month mainly because of a drop in food prices, which make up one-third of the inflation basket. Food prices slid 0.4 percent from July. A falling inflation rate gives the government a good chance to lift its price control on products such as fuel, water, and electricity further, Lehman Brothers economist Sun Mingchun said.

In the past year, policymakers have managed to freeze the prices of public utilities, and fuel and power tariff. They introduced temporary price curbs on some other goods, too, to rein in inflation. Yet soaring labor and raw material costs, reflected in the rising PPI figure, have eaten into the profit of local enterprises because price control and fierce competition prevented them from passing the inflationary pressure on to consumers. Such price liberalization could make the CPI rise again in the next few months, Sun said. "But if implemented in a gradual and orderly way, inflation should remain below 6 percent year-on-year during the rest of the year."

(Source: China Daily)
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Still, reported corporate profits will be hit in the short-term. Why? Partly due to production curbs during the Games, partly due to post-Olympics slowing down of Govt spending, partly due to the US slowdown. But many choose to ignore that during the bull market phase, as much as 30%-40% of corporate profits being reported were derived from "investments" in other Chinese listed companies. So, it was a pretty nice merry-go-round while it lasted. Maybe the recent stamp duty and bank reserve cuts will start the ball rolling again, as the last few days' strong rebound might indicate. Nevertheless, the point is that through all the recent turmoil, retail sales remained strong... or was it purely an Olympics effect?


/ichithekiller