China's retail sales growth hits 3-year high

China's retail sales growth hits 3-year high

Rising incomes and buoyant stock market contributing to spending power of Chinese

LOOSENING PURSE STRINGS: The report points to rising spending and the government having some success in stimulating consumption, say economists. -- PHOTO: AFP HONG KONG - CHINA'S retail sales unexpectedly accelerated at the fastest pace in three years, buoyed by rising incomes and a stock market that has almost doubled this year. The National Bureau of Statistics said yesterday that retail sales last month amounted to 715.8 billion yuan (S$143.9 billion), 15.9 per cent more than a year earlier and handily beating forecasts of a 15.3 per cent gain. Sales were flattered by a rise in inflation last month to a 27-month peak because of a surge in meat prices. But economists said the report confirmed a well-entrenched trend of rising spending and showed the government was having some success in tilting the economy away from its dependence on exports and investment. 'The government has been working very hard to stimulate consumption so this is a positive development, but I suspect there has been a bit of contribution from the wealth effect from the stock market,' said Mr Huang Yiping, chief China economist for Citigroup in Hong Kong. The rise in incomes, along with rapid urbanisation, is the main factor underpinning consumption. Disposable incomes in towns rose 16.6 per cent in real terms in the first quarter from a year ago; rural cash incomes were up 12.1 per cent. But the government has been steadily increasing spending on health and education, and working to expand pensions coverage, so people have more money in their pockets and feel less of a need to save for a rainy day. Spending in all but one category - telecommunications equipment - rose by much more than the headline figure. Sales of building materials jumped by 62.8 per cent from a year earlier, office supplies by 26.3 per cent, jewellery by 37.3 per cent and cars by 34.2 per cent. Mr Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, called the quality of the data poor, but he said the rising trend was clear. The increase was the biggest since May 2004 and the combined sales for the first five months were up 15.2 per cent from a year earlier, well above the 13.7 per cent gain for the whole of last year. 'You only have to walk up the street to see that retail sales are strengthening,' he said. The government also reported yesterday that China attracted US$25.3 billion (S$38.9 billion) in foreign direct investment in the first five months of the year, 9.87 per cent more than in the same period last year. Foreign manufacturers have invested in China at the rate of over US$1 billion a week since Beijing joined the World Trade Organisation in late 2001, drawn by cheap labour, first-rate infrastructure and a big domestic market. Economists have long expected the surge to ebb. After yesterday's figures, the wait goes on. REUTERS, BLOOMBERG NEWS