China's retail sales accelerate on rising incomes

Updated: 2007-06-13 16:14

China's retail sales unexpectedly accelerated at the fastest pace in three years, buoyed by rising incomes and a stock market that's doubled this year.

Sales rose 15.9 percent from a year earlier to 715.8 billion yuan ($94 billion) after gaining 15.5 percent in April, the statistics bureau said today. That beat the 15.3 percent median estimate of 19 economists surveyed by Bloomberg News.

A stock market that added more than $1 trillion in value this year has helped spur sales for retailers from low-cost clothing chain Giordano International Ltd. to luxury Mercedes- Benz and Audi car dealers. China is the world's fastest-growing retail sales market, according to McKinsey & Co.

"The economy is doing well and people are making a lot of money," said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong. "The stock market's performance also helps, although that only affects a small part of the population."

The gain was the biggest since May 2004 after adjusting for distortions caused by China's Lunar New Year holidays. For the first five months, China's retail sales climbed 15.2 percent from the same period last year to 3.5 trillion yuan.

Stocks Surge

The CSI 300 Index of stocks climbed 2 percent in Shanghai today. The benchmark has more than quadrupled since the start of 2006, prompting warnings of a bubble.

"We are bullish about China's consumption," said Isaac Meng, an economist at BNP Paribas Peregrine in Beijing. "Deposit rates are extremely low, prompting people to spend, and there's a huge wealth effect from the stock market."

Wal-Mart Stores Inc., the world's biggest retailer, Carrefour SA, Europe's largest, and Giordano, a Hong Kong-based global clothing retailer, are expanding in China.

Mercedes-Benz (China) Ltd.'s sales in mainland China rose 34 percent in the first five months, the Shanghai Daily reported. Audi AG, Volkswagen AG's luxury-car division, said sales in China jumped 30 percent in May.

China's growth compares with a likely 0.6 percent month-on- month gain in US retail sales in May, according to a Bloomberg News survey of economists.

Furniture, Jewelry

Furniture sales jumped 42 percent and those of jewelry climbed 37 percent. Automobile sales climbed 34 percent.

China's economy, the world's fourth largest, grew 11.1 percent in the first quarter from a year earlier. Disposable incomes in urban areas jumped 19.5 percent and rural households' earnings climbed 15.2 percent. Soaring meat prices may increase rural incomes.

Premier Wen Jiabao has raised minimum wages and increased welfare spending to raise consumption and curb dependence on exports and investment.

Job opportunities also helped to buoy consumer confidence. Hang Seng Bank Ltd., Hong Kong's second-largest lender by assets, this month said it will boost the number of branches in China to 50 from 16 and increase its staff to 2,000 from 800.

"The economy is going well," said Billy Ngok, Hong Kong- based chairman of Hembly International Holdings Ltd., a distribution and retailing company. "The consumers are very confident and want to buy."

Retail sales in urban areas jumped 16.3 percent in May from a year earlier and those among rural households increased 15 percent, today's statement said.

Closing on Japan

Sales will grow about 14 percent this year, the Ministry of Commerce said this month. The country will probably surpass Japan by 2010 to become the world's second-largest consumer goods market, Chinese Vice Premier Wu Yi said on May 24.

Rising consumer spending is boosting investment among retailers. Belle International Holdings Ltd., China's biggest retailer of women's shoes, has raised HK$10 billion ($1.3 billion) in a share sale to add outlets.

Growth in retail sales still lagged behind that of exports and fixed-asset investment. China's overseas sales jumped 28.7 percent in May from a year earlier and urban fixed-asset investment climbed 25.5 percent through April.

Boosting the role of consumption in China's economy "is happening, but it will be a long process," said Meng, of BNP Paribas Peregrine.

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