Seeking Alpha
Profile| Send Message|
( followers)

First the good news. The total volume of retail sales in China will likely grow by 16 percent next year, that according to Chen Deming, China’s Minister of Commerce. If such a prediction were made about U.S. retail sales, champagne corks would be flying in every mall and big box store nationwide. But, when considering China, as always, it’s complicated.

That brings us to the less good news. China’s retail sales figure is based partly on government spending as it directly affects the retail economy. The ratio of government to true consumer spending has never been clear, but with Beijing’s stimulus money still being distributed, it has to be a substantial portion.

Here’s the last part of the downside. This year’s retail numbers, which have been running at a year-over-year average rate of about 15 percent improvement in retail sales are somewhat misleading because some monthly figures stand in comparison to the sharp drop in sales caused worldwide by the global financial crisis.

Back to the good news. A 16 percent increase for the whole of next year is still a very impressive number.

The prediction for 2010 stands in comparison to this year when widespread government rebate and incentive programs have improved appliance sales and driven automobile sales into the stratosphere. Improving on a stimulus boosted economy is an enviable prospect indeed.

No one should be shocked by now to learn that China became the world’s number one vehicle market in 2009 with sales in excess of 1.2 million units.

By the end of October, the “home appliances to the countryside” stimulus program yielded $17.58 billion in retail sales for appliance makers, not bad considering the ‘countryside’ is code for ‘poor’ districts in China. Another stimulus called the “trade-in program” of rebates created another $1.46 billion in sales of new cars and home appliances by November 24th.

With exports still down China is hitting the gas to boost domestic consumption, hoping China’s consumers will pick up the slack. Stimulus funds are being distributed according to Beijing’s guidelines but not all of the money is coming from Beijing. Under the guidelines, 32 cities and regions have allocated funds worth $366 million to expand sales networks in rural areas, to rebate programs for household appliances and automobiles, and to launch credit subsidy policies for small and medium-sized enterprises.

Chang Xiaocun, director general of the Department of Market System Development told China Daily, “Ballooning consumption of household appliances, auto, property and agricultural goods is the major driving force behind the rising retail sales.”

Chinese mandarins have given every indication that they want the retail boom to continue. China’s consumers spend a far smaller percentage of GDP than Americans so there’s plenty of room for growth. All of the signals we are getting indicate that consumer stimulus programs will continue through 2010.

Disclosure: no positions

Source: Exploring China's Exploding Retail Sales