China October Retail Sales Rise a Record 18.1%

Chinese retail sales jumped 18.1 percent in October from a year earlier, the fastest pace on record, propelled by rising incomes, accelerating inflation and windfall gains from the surging stock market.

A spokesman for the National Bureau of Statistics, which released the data, said the increase was the largest since the government started issuing monthly sales data in 1999.

"This is another sign that the Chinese growth engine continues to hum along and it offers reassurance that China will remain a driver for global growth and compensate for a slowing in the U.S.," said David Cohen, an economist at Action Economics in Singapore.

Economists polled by Reuters had expected a 17.2 percent rise.

The spending figures are nominal and so are flattered by fast-rising consumer prices, which rebounded to an 11-year peak of 6.5 percent in October, said Zhang Xinfa, an analyst with Galaxy Securities in Beijing.

"Growth like this above 18 percent is not sustainable. It will drop back to around 17 percent in the next two months," he said.

Shoppers were out in force last month because of a week-long national holiday in early October and the wealth effect from booming stock and property markets.

"People have earned money in the stock and property markets and are now taking money out to increase their consumption. People now really have more money to spend," Zhang said.

Stock prices have doubled this year, while figures released earlier on Wednesday showed annual property price inflation in 70 major cities quickened to 9.5 percent in October from 8.9 percent in September.

In the hot markets of Beijing and Shenzhen, real estate prices were up more than 15 percent.

Inflation Effect

The impact of inflation, which has been driven by higher food costs, was evident in a partial breakdown released by the statistics office. People spent 45 percent more last month than in October 2006 on grain, edible oils, meat and poultry.

Stripping out the impact of inflation, Yiping Huang with Citigroup in Hong Kong estimated that sales in volume terms are rising between 11 percent and 12 percent a year.

"We think consumption is improving in China, though still at a very modest pace," he said.

The sturdy sales are welcome news for policy makers, who are striving to tilt China's growth away from investment and exports and towards consumption.

The government has launched a raft of initiatives, including cutting taxes and scrapping school fees, to leave consumers with more spending money.

Urban disposable incomes rose 13.2 percent from a year earlier in real terms in the first nine months, while rural cash incomes were up a real 14.8 percent.

Retail sales in urban areas rose 18.6 percent last month with sales in the countryside, home to 56 percent of China's 1.3 billion people, up 17.1 percent.

"If consumption is strengthening, then authorities should be in a better position to introduce policies to correct the structural economic imbalances, including slowing investment a bit further and trying harder on narrowing the trade surplus," Citigroup's Huang said.

The quality of the retail sales figures is poor, even by China's standards, as they exclude services, except catering, and include purchases by the government and firms as well as by households.

The statistics office breakdown by products also showed every category except telecommunications posting a much bigger rise than the overall 18.1 percent figure.

Garment sales were up 32.6 percent, recreational goods 35 percent, jewelry 37.5 percent, automobiles 36.1 percent and building materials 42.5 percent.