Robust Consumer Spending Underpins China's High Growth

The Chinese government’s subsidy program seems to be highly effective as the Golden Week (October 1 to 8) turned out to be a golden period for China’s retail and tourism sectors as average retail sales increased 18% year-on-year, and total retail sales for the week hit RMB570bn, says Bank of America Merill Lynch. The research firms say that the 18% growth is significantly higher than the 15.1% achieved in the first eight months this year.

 

Sales of big-ticket items, such as passenger vehicles, jewellery and home appliances, were particularly strong. According to Merill Lynch, electrical appliance sales at Suning, a nationwide home appliance chain, jumped 110% y-o-y in Beijing (vs. 25.8% y-o-y during 1-3 Oct). The government subsidy program effectively boosted consumption of TV and fridges. One outlet said 80% of its sales on October came from the “old-for-new” program.

 

Auto sales momentum sustained during the Golden Week, even after surging 81% y-o-y in August. Though car registrations are not available during the Golden Week holidays, auto sales rose 71.7% y-o-y in Chongiqng and 55.5% yo-y in Nanjing. Some popular models were even out of supply.

 

Jewelers also benefited. Fueled by wedding and collection/investment demand for commemorative gold bullions and coins to mark the PRC’s 60th anniversary, the biggest jeweller in Beijing sold more than Rmb100mn in jewellery and gold, up 30% y-o-y.

 

Meanwhile, revenue at restaurants surged, due mainly to family reunions for the mid- Autumn Festival and wedding banquets. Revenues rose 44.3%, 26.5%, 21.8% and 18.2% y-o-y in Hebei, Liaoning, Henan, and Chongqing, respectively.

 

Retail Sales Grew Faster in Inland China

 

Merill Lynch observes that retail sales growth seems to be particularly high in inland China. Guizhou Province and Chongqing Municipality in Western China top the list of retail sales during the Golden Week – up 37.6% and 32.6% y-o-y, respectively. The pattern is in inline with retail sales in 1H09 (19.2% y-o-y in Western China versus 16.2% y-o-y in Eastern China).

 

According to Merill Lynch, inland China achieved better results on average because it has a higher GDP growth rate. Also, the current stimulus package is biased towards Inland China. Massive investment spending there should result in more income and attract more wage earners, who will obviously consume more there. Furthermore, inland China is relatively rural compared to urbanized coastal areas. This means inland China benefits more from stimulus programs targeting rural areas. During the financial crisis, 20 million migrant workers lost jobs in coastal areas and many of them opted to return to their hometowns inland. The government’s stimulus measures have helped retain them in inland China.

 

Merill Lynch also reports that domestic tourism accelerated in the latter half of the holidays. The holidays also put more people on the road as nearly half a billion passengers (38% of the 1.3 billion population) traveled by railways or buses during the Golden Week, up 6.8% y-o-y. Air travel (5.3mn) was up 7.8% y-o-y, and travel by waterways (7.8mn) was up 4.1% y-o-y.

 

Overseas travel also jumped. Official data shows that mainland visitors to Hong Kong, Taiwan and Macau jumped 50% y-o-y during the Golden Week. Overseas travel booked through agents in Shanghai was up 107.4% y-o-y, with air tickets to Europe sold out in advance. In Merrill Lynch’s view, falling travel costs, a strong RMB (versus currencies other than the USD) and stable income were possibly the major factors behind this surge in overseas travel.
 

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