China - Retail Sales Surged Despite Weak Financial Condition

Global financial crisis could not deter Chinese consumers to shop and retail sales in the country rose around 21% in 2008, getting a boost from the holiday season and New Year.

According to the Ministry of Commerce, Chinese retail sales registered an estimated growth of 21% in 2008, as reported by REUTERS.

Retail sales in China increased 21.9% during Jan-Nov 2008 as compared to the same period in 2007. Thus, the annual growth rate of 21% indicates a lower growth rate in December 2008. The Ministry of Commerce stated that Chinese retail sales surpassed the mark of 10 Trillion Yuan (US$ 1.5 Trillion) for the first time in mid-December 2008.

However, the overall growth of retail sales decreased from 22% in October to 20.8% in November 2008, but the decline was below estimation.

Despite the adverse effects of the global economic turmoil on the local market, retail sales in China increased due to holiday season and New Year. Further, the easing industrial production was predominantly focused on capital goods, which don’t show up in retail sales figures.

According to the National Bureau of Statistics, following the previous weak imports, exports and factory production figures, retail sales posted better results in November 2008, which were above expectation; resultantly, retail industry registered an overall growth in sales in 2008.

In November 2008, wholesale prices in China declined steeply, proving that the fourth largest economy of the world might be heading towards deflation. As per the central bank website, due to the financial crunch, the task of China to develop and implement financial policies is facing more hurdles.

In the current unfavorable conditions, a further slowdown in the retail sales is expected in near future. However, fiscal expansion will probably shield a sharp decline in retail sales, particularly consumption.

Furthermore, with rapid slowdown in the economy, the Chinese government is expecting the consumers to spend more to overcome the situation created by decreasing exports and weakening investments.

According to a Research Analyst at RNCOS, “Though retail sales in China went up in 2008, the real challenge lies ahead. The current situation is a real test for the Chinese policy makers and consumers. And consumers will certainly play a significant role in determining the fate of country’s retail sector.”

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