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Chinese Retail Sales Surge 22% in April on Year

Chinese retail sales powered ahead in April, providing welcome evidence for policy makers that sturdy domestic demand is taking up slack in the economy left by softening exports.

Sales in the year to April rose 22.0 percent, up from March's 21.5 percent pace and well ahead of market expectations of a 21.2 percent increase.

China, Chinese Flag
CNBC.com
China, Chinese Flag

It was the fastest rise since the government started gathering monthly data in 1999.

"Consumption growth has accelerated, even in real terms, in recent months, as residential income accounts for a growing share of the increase in national wealth," said Lu Zhengwei, an analyst at Industrial Bank in Shanghai.

The figures, which were released on Tuesday by the National Bureau of Statistics, are expressed in nominal terms and so are boosted by China's lofty inflation rate, which stood at 8.5 percent in April.

But economists said consumption was climbing steadily due to higher wages and a steady stream of government policies, focused particularly on the countryside, to tilt growth away from investment and exports.

"For a good amount of spending, consumption in China is actually going to be quite resilient to any slowdown in external demand," said Glenn Maguire, chief economist at Societe Generale in Hong Kong.

"It's quite an encouraging trend: we're continuing to see a broadening of income formation in the Chinese economy and that's supporting retail spending," he said.

Retail sales surged 16.8 percent in 2007, the fastest growth in 11 years.

In the details, people spent less on grains, edible oil and meat in the year to April than in March, suggesting either that food inflation is ebbing or that high prices are forcing consumers to tighten their belts. The pace of car sales also slowed.

But sales of garments, home appliances, furniture and recreational goods picked up smartly, pointing to robust discretionary spending by China's burgeoning middle class.

"Retail sales will remain strong in coming months. We have no doubt about that, said Xue Hua, an analyst with China Merchants Securities in Shenzhen.

Xue forecast a 20 percent rise in sales for the whole year, an increase of about 13 percent after inflation.