china: retail sales rise at fastest pace in 2 year

By Nipa Piboontanasawat

Nov. 14 (Bloomberg) -- China's retail sales jumped in October at the fastest pace in almost two years as rising incomes spurred consumer spending in the world's fourth-largest economy.

Sales rose 14.3 percent after gaining 13.9 percent in September, the Beijing-based National Bureau of Statistics said today. That beat the 14 percent median estimate of 21 economists surveyed by Bloomberg News.

Retail sales are gaining pace without stoking inflation, allowing Premier Wen Jiabao to push ahead with measures aimed at encouraging consumption. China has raised minimum wages and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports.

``It's very encouraging that consumer spending is improving,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``This is key to resolving the structural imbalance of overinvestment.''

Retail sales grew the most since December 2004, adjusted for distortions caused by the Lunar New Year holiday, which falls in January in some years and in February in others. October's sales of 699.8 billion yuan ($89 billion) brought revenue this year to 6.2 trillion yuan, up 13.6 percent from the year-earlier period.

China's consumer goods market will ``maintain fast growth'' in the fourth quarter, partly because of rising incomes, the Ministry of Commerce said Nov. 2. It forecast 2006 retail sales will rise 13.5 percent to a record 7.6 trillion yuan.

Incomes

Economic growth that averaged about 9 percent over the past decade helped create millions of new middle-class households and a booming market for Nokia Oyj cell phones, Nissan Motor Co. cars and Prada Holding NV handbags.

Wumart Stores Inc., one of China's largest supermarket chains, on Nov. 7 said third-quarter profit jumped 53 percent as more affluent Chinese customers increased spending on food, home appliances and clothes.

Per capita disposable incomes in towns and cities increased 10 percent in the first nine months from the same period last year and rural incomes jumped 11.4 percent. Wages have about doubled in the past five years, in pace with overall economic growth.

``Incomes of people have been rising quite tremendously,'' Alfred Chan, managing director of Ports Design Ltd., a fashion retailer which runs about 300 outlets in China, said in an interview. ``Our future appears to be quite good as economic growth will continue at a good pace.''

Jewelry, Cosmetics

Jewelry sales jumped 42 percent in October from a year earlier and sales of household electronics climbed 25.8 percent. Clothing sales increased 16.6 percent and sales of cosmetics rose 21.2 percent, the release said.

Nissan, Japan's second-largest automaker, on Nov. 2 said it plans to introduce as many as five Infiniti brand models in China by the end of 2008 to tap rising demand for luxury cars. Total vehicle sales in China jumped 27.6 percent last month, the Association of Automobile Manufacturers said Nov. 9.

Inflation slowed to 1.4 percent last month even as household spending heated up, as vegetable costs slumped and excess capacity in some industries prevented companies from boosting prices. Goldman Sachs Group Inc. economist Liang Hong on Oct. 24 said China's ``growth-inflation tradeoff'' has improved.

Overseas Employers

Overseas companies investing in China are also helping boost consumption by hiring local people at wages that are typically higher than at domestic employers.

PricewaterhouseCoopers LLP, the world's biggest accounting firm, on Nov. 6 said it plans to hire 1,500 to 2,000 people annually in China over the ``next several years'' to meet growing demand for financial services.

``Retail sales should keep growing as the government tries to rebalance growth from investment toward more consumer spending,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at [email protected]

Last Updated: November 13, 2006 22:35 EST