China Sees Strong Retail Sales Growth, Weak Growth in Industrial Production

The Shanghai stock market had another marginally weak day, losing 0.3%, after dropping 0.4% on Wednesday, to close at 2438. There was no obvious reason for the decline and little volume in the market. On the one hand the statistical bureau released figures showing that industrial production rose by 14.7% year on year in July, below June’s 16.0%, which also happened to be the median estimate by most economists. This suggests the possibility of a future export-related slowdown, but is as likely to have been caused by Olympic-related pollution-measures, like closing of factories in the Beijing area.

On the other hand, yesterday the statistics bureau released figures showing that retail sales grew at the fastest pace in nearly a decade. According to an article in yesterday’s Bloomberg:

China's retail sales expanded at the fastest pace in at least nine years in July as incomes and prices climbed in the world's fastest-growing major economy. Sales rose 23.3 percent to 862.9 billion yuan ($126 billion) after gaining 23 percent in June, the statistics bureau said today. That was more than the 22.4 percent median estimate of 19 economists surveyed by Bloomberg News.

This is good news because China very clearly needs to rebalance its economy away from its over-reliance on exports and investment, although it is unclear how much of this growth may be caused by Olympics fever.

I entered the apartment building yesterday of one my friends, and on the ground floor under the stairs there were two sets of boxes that had obviously been part of the packaging of two very large television/entertainment units. My friend laughed when he saw the boxes and said that obviously his neighbors had bought new TV sets to watch the Olympics, and he told me that his parents had recently done the same. I guess this is happening quite a lot, and may affect the consumption numbers.

At any rate TCL, China’s biggest consumer electronics company, said on Tuesday that it sold nearly 5.4 times as many liquid-crystal display TV sets in July than it sold in July 2007.

On that note I have been asked several times recently if I think there will be a post-Olympic slowdown – for example today two friends of mine who work in one of the government think tanks wanted to discuss this over coffee. They seemed concerned about the possibility.

I am not smart enough to say. Given the feverish excitement about the Olympics, the rise in Olympic-related consumer-goods sales, and the number of people who have traveled to Beijing either to watch the games or to act as volunteers, I would imagine that there has been a temporary spike in spending that will be reversed in the next few months – or will at least act as a drag on future spending.

I don’t know how serious this reduction in spending will be, however. I think that at least part of the answer is psychological. China has been on a massive high recently, and I expect it to continue (China is doing very well in the Olympics and is clearly in the lead in capturing gold medals). After the Olympic Games are over and the rush of excitement gone, it will be interesting to see what the mood of the country is. In the major cities, I suppose, at least part of the answer may depend on real estate and stock market prices.

Comments

[kelaido:]

Hi Michael, Just moved to Beijing thus unable to access your usual blog. More likely than not, the Olympics maybe a significant inflection point. Several months ago, many expected the Chinese stock markets to do well leading to the Olympics. They have not. Many of our friends expected Beijing housing to be tight during the Olympics, yet we found a nice apartment adjacent to 4th Ring Road East on subway line within 2 days at 8.5% discount to landlord's asking price. Now some quarters are expecting the markets to collapse after the games. Markets are grossly oversold on technical readings but the rebounces have been feeble. It is easy to expect the current trend to continue. Stocks need a few big volume washout down days to establish a major low again.

2008 Aug 14 10:29 PM

[NOWHEREMAN:]

kelaido and Mr. Pettis, agreed that Retail Buying is up. My question is who is supplying these products now and who will be in the future if the Industrial complex slows dramatically?

As far as housing in Beijing, how much has it to do with the inability to drive in Beijing?

I said Mr. Pettis because when I am wrong, I admit it. You have been right too many times for me to ignore your articles in the Future.

I own some shares of a Company by the name of Hyflux. Have you heard of them.

2008 Aug 15 09:14 AM

[Portable Alpha:]

Michael, do you think equity market will bounce back a bit somehow [Lets say late Sep to early Oct]?

You are right, its not the right time and right place to buy stocks momentarily, and probably so for another 6 months.

It appears Beijing is considering a stimilus package, any thought on that?

China May Spend $58 Billion to Aid Growth, Gong Says
www.bloomberg.com/apps...#

I don't remember who has said that, but somebody was on Bloomberg radio talking about impact of tax rebate checks, and his comments were sth. like people were gonna have iPOD money.

Rumor suggests Chinese government had been mulling over a stimulus package earlier, probably in April or May, tho 4 Chuan Quake had probably stalled such initative.

btw, always a fan.

2008 Aug 20 02:06 AM