China’s retail-industrial data signal moderating Rebound

Retail sales: weakest start to a year since 2004

3/9/2013

CHINA -- China’s retail sales had their weakest start to a year since 2004 after new leaders cracked down on extravagance while factory-output growth slowed, adding to signs of a moderating economic rebound.

Retail sales increased 12.3 percent in the first two months of 2013 from a year earlier, the National Bureau of Statistics said today in Beijing, compared with the median analyst estimate of 15 percent. Industrial production rose 9.9 percent, fixed- asset investment excluding rural households rose 21.2 percent and February inflation accelerated to 3.2 percent.

Today’s data may delay any monetary tightening in coming months after the nation’s new leadership team cements its succession next week at the legislature’s annual meeting. Li Keqiang, set to become premier, inherits the task of sustaining the nation’s recovery from the weakest economic growth in 13 years while reining in asset prices and surging credit.

“The time is still way off for an explicit policy change” such as raising interest rates or banks’ reserve requirements, Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note. The recovery is being led by “fast investment growth” and “could falter once monetary policy becomes tight on concerns of rising risks of inflation” and a property bubble.

The gain in retail sales was below the lowest economist projection of 13.8 percent and was the smallest for a January- February period since a 10.5 percent pace in 2004. Catering sales growth slowed to 8.4 percent from 13.3 percent in the same period last year.

Lavish Spending

“Consumption appears to have been hit hard” by the leadership’s efforts to curb lavish spending, said Ding Shuang, senior China economist with Citigroup Inc. in Hong Kong. “In general this seems to be a weak start of the year.”

Goldman Sachs Group Inc. said in a March 6 report that the Communist Party’s campaign against corruption and waste may reduce restaurant and food spending enough to lower inflation by close to 1 percentage point, with the caveat that its estimates are “highly uncertain.”

“China’s growth recovery is still not on a solid footing,” Chang Jian, China economist at Barclays Plc in Hong Kong, said today. Still, even with the “negative impact” from new party chief Xi Jinping’s campaign, “we remain positive about the secular consumption trend given rising household income” and an aging population, she said.

Shares of Kweichow Moutai Co., maker of the eponymous high- end white spirit, have dropped 19 percent since Xi took power on Nov. 15, compared with a 14 percent gain in the Shanghai Composite Index.

Growth Goal

Outgoing Premier Wen Jiabao this week set a 2013 economic- growth target of 7.5 percent, unchanged from last year when actual expansion slowed to 7.8 percent, the lowest since 1999. While he said in his final annual report to the legislature that China’s economic development is still “unbalanced, uncoordinated and unsustainable,” he also said that the role of investment “cannot be underestimated.”

Gross domestic product rose 7.9 percent in the final three months of 2012 from a year earlier, the first acceleration in two years.

The increase in January-February factory output compared with the 10.6 percent median estimate in a Bloomberg survey of 22 analysts and December’s advance of 10.3 percent. The median forecast for growth in fixed-asset investment excluding rural areas was 20.7 percent.

Export Figures

Helen Qiao, chief Greater China economist at Morgan Stanley in Hong Kong, said the industrial-production data suggest that recent export numbers were exaggerated. “In view of the strong export figures in the last two months, such IP growth should have been higher than currently reported,” Qiao said in an e- mail.

Spending on water production doubled in the first two months from a year earlier and investment in public facilities jumped 55 percent, reflecting government pledges to step up spending on urban infrastructure and the environment amid increasing social discontent about pollution.

The statistics bureau doesn’t break out figures for January and February in an attempt to smooth distortions caused by the timing of the Chinese Lunar New Year holiday.

Data earlier this month showed February readings of four purchasing managers’ indexes fell, raising concerns the economic recovery may be peaking.

Holiday Impact

The agency attributed the acceleration in consumer inflation in February to the impact of the Lunar New Year festival last month. Food prices jumped 6 percent from a year earlier, although that was slower than the holiday month in January 2012 when prices jumped 10.5 percent.

Falling producer prices may limit government concern that inflation pressure is rising. Factory-gate prices dropped 1.6 percent in February from a year earlier, the same pace as in January and the 12th straight decline, led by lower prices in mining, raw materials and manufacturing goods.

The bureau said consumer price-gains may moderate this month as the impact of the festival fades and better weather boosts food production.

“Underlying inflation pressures are clearly building up,” Li Wei, a Shanghai-based economist with Standard Chartered Plc, said in a note today, citing an expected increase in pork prices and further gains in residential costs.