Strong growth in sales gives hope of soft landing

PUBLISHED : Wednesday, 15 September, 2004, 12:00am
UPDATED : Wednesday, 15 September, 2004, 12:00am

The 13.1pc increase provides evidence consumer spending can drive economy

China's retail sales increased to 426 billion yuan for August, a brisk rise of 13.1 per cent compared with the same month last year.

The growth rate was welcome news for the central government, which is seeking to cushion the impact of a sharp drop in investment and steer the economy towards a soft landing.

'The sales figure in August actually held up pretty good if you consider the still-high inflation level,' said Zeng Gang , a finance research fellow with the Chinese Academy of Social Sciences.

'It's a positive number in the sense that fixed-asset investment has been declining at a rapid pace and a decent consumption level is important for the overall economy.'

Xinhua said last night that the National Development and Reform Commission had achieved interim success in its efforts to curb runaway fixed asset investments.

Since April, the commission had re-examined 70,600 fixed-asset projects with a total investment of 17.2 trillion yuan. Among those, 4,150 projects worth 844 billion yuan had been stopped, suspended or scrapped.

The commission said this had contributed positively to the control of investment growth. The projects reviewed included steel, cement, as well as the offices and training centres for party and state organisations, golf courses and logistic parks.

Consumer spending in August remained strong after a year-on-year gain of 13.2 per cent in July, evidence that consumers are still willing to spend, in spite of rising prices.

August's consumer price index grew 5.3 per cent year on year, the same level of increase as in July, which was a seven-year high.

The sales figures came on the heels of data this week showing a clear slowdown in fixed-asset investment and money supply growth. Fixed-asset investment rose 26.3 per cent in the year to August after a gain of 31 per cent in the year to July, while money supply growth was only 13 per cent, compared with July's 15.3 per cent rise.

'The government would love to see the consumer spending index maintained at a steady level, because that's an indicator of a sustainable economic growth,' Mr Zeng said.

August retail sales in urban areas increased 14.2 per cent to 282 billion yuan and sales in rural areas went up 11 per cent to 144 billion yuan. Food sales surged 27.7 per cent, mainly driven by a 13.8 per cent rise in prices. Rising crude oil costs increased sales of oil and oil products, surging 48.7 per cent.

In a sign that some of the overheating sectors are cooling down due to policy adjustments, sales of vehicles, one of the target industries for the mainland's tighter lending controls, went up just 9.8 per cent from a year earlier, compared with a frenetic growth level of 49 per cent for April.

'I think generally speaking, the economy has been adjusted pretty well,' an economics professor from Peking University said.