Retailers on the retreat
Mainland shops face profit cuts or losses as spending wanes, threatening Wen Jiabao's focus on domestic demand as a growth driver
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Mainland retailers from clothing to computers are reporting weaker sales growth, undermining Premier Wen Jiabao's goal of relying more on consumer spending for expansion as the economy cools.
Sales of passenger vehicles trailed analysts' estimates last month. Sportswear seller Li Ning closed 1,200 stores in the first half of the year, while same-store sales at department-store chain Parkson Retail Group rose at less than a quarter the pace of a year earlier. Gome Electrical Appliances said it would report a first-half loss on lower sales.
The reports show an extra drag on the world's second-largest economy after export growth almost stalled last month and factory output missed forecasts. As the year saw its fastest decline in industrial companies' earnings and the stock market reached a three-year low, income gains might slow.
This will give consumers less money to spend and boost the odds that Wen will add stimulus.
"The pressure on retail sales is growing bigger and bigger," said Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia.
"When exports are fragile and investment is weak, if companies start to reduce their production or workforce, how can it be possible for consumer spending to stay strong?"
Retail sales missed economists' forecasts in three of the last four months and Mizuho said the figures would stay weak. Sales increased 13.1 per cent last month from a year earlier, the National Bureau of Statistics said, compared with the median 13.5 per cent estimate of 32 analysts in a survey.
The official data include government purchases and are not adjusted for inflation or broken down by consumer or government spending. Fiscal spending is rising at a faster clip than retail sales, up 37 per cent last month from a year earlier, the Ministry of Finance says.
After adjusting for prices, retail sales rose 12.2 per cent last month and 12.1 per cent in June, the statistics bureau said.
Corporate profits and stock markets may be keys to consumer spending. Last month, mainland industrial profits fell the most this year, a government report on Monday showed.
A record number of Hong Kong-listed companies since the start of June have predicted lower profit or a loss for a specific period, Bloomberg News data shows. Shanghai's stock benchmark is close to the lowest level since February 2009.
"Consumers have generally become more conservative in their spending, especially on certain higher-end discretionary products," Natural Beauty Bio-Technology, which sells skin-care products, said in an August 16 filing with the Hong Kong stock exchange.
Wen signalled in March that leaders were determined to cut reliance on exports and capital spending in favour of consumption. He told legislators: "Expanding domestic demand, particularly consumer demand, which is essential to ensuring China's long-term, steady and robust economic development, is the focus of our economic work this year."
The People's Bank of China cut interest rates in June and July for the first time since 2008 and has lowered banks' reserve requirements three times starting in November.
Beijing-based Parkson saw its shares fall 6.5 per cent in Hong Kong on Monday, the most since October, following the report of slowing sales on Friday. Barclays analysts cut their rating on the company to "underweight" from "overweight" and said earnings in the next 12 months were likely to "remain lacklustre".
At Parkson's seven-storey Beijing store, located across the street from the central bank's headquarters, bank employee Li Ruidong said he had cut back on shopping there and preferred low-end malls to Parkson, whose luxury brands include Armani, Cartier and Hermes.
"My salary can't catch up with the rise in prices, and I have a daughter to feed," Li, 39, said.
Zhang Hong, a 42-year-old housewife who lives near Parkson, said she would try on clothes at the store, but make her purchases online. "I only buy coffee and eat McDonald's here."
Hengdeli Holdings of Hong Kong, the retail partner of the Swatch Group in China, said it expected sales growth to slow in the second half as shoppers curbed spending on luxury watches.
Some firms are counting on the government to aid revenue. Hong Kong-based Trinity, a high-end menswear retailer that sells Gieves & Hawkes and Cerruti in China, expected sales to speed up next year as authorities tried to boost growth, managing director Sunny Wong said. Parkson said China had room to "further adjust its macroeconomic policies".