China's Retail Sales Rise 22% as Crisis Fails to Damp Spending

Nov. 12  -- China's retail sales grew at close to the fastest pace in nine years even as the global financial crisis and a property slump knocked confidence.

Sales rose 22 percent in October from a year earlier to 1.008 trillion yuan ($148 billion), the statistics bureau said today, after gaining 23.2 percent in September. That matched the median estimate of 16 economists surveyed by Bloomberg News.

China's government pledged $586 billion of spending on low-cost housing and infrastructure on Nov. 9, seeking to boost confidence as the world's fourth-biggest economy loses steam. Waning export demand and falling real-estate sales threaten to undermine growth that has already slowed to the weakest pace in more than five years.

``The big package sent a signal for people to keep shopping,'' said Arthur Kroeber, head of research at Dragonomics Advisory Services Ltd. in Beijing. ``Rising domestic consumption will help to cushion economic growth in the coming months.''

Wage gains may sustain spending. Urban disposable incomes climbed 7.5 percent in the first nine months of 2008 from a year earlier, after adjusting for inflation. Rural incomes climbed 11 percent.

Andrew Wu, the group director in China of luxury goods maker LVMH Moet Hennessy Louis Vuitton SA, said Nov. 11 that he was ``cautiously optimistic'' about the economy after the stimulus announcement. ``China is in a strong position.''

PepsiCo's Investment

PepsiCo Inc., the world's largest snack maker, said this month that it plans to invest $1 billion in China in the next four years to increase production and sales.

China's economy expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003.

Inflation has halved from a 12-year high of 8.7 percent in February. Exports grew by the least in four months in October and manufacturing contracted by a record as the global crisis damped demand.

Weakness in real estate in major cities is undermining investment and construction. In Shenzhen, a manufacturing and exporting hub on the nation's east coast, house prices fell 12.6 percent last month from a year earlier.

The benchmark CSI 300 Index of shares has dropped 67 percent this year, further reducing confidence.

The stimulus package, running through 2010, includes building low-rent housing, rural infrastructure, railways, roads and airports, tax cuts for business investment and subsidies for farmers.

Rate Reductions

The central bank has already cut interest rates three times in two months and reduced restrictions on lending to stimulate growth. The key one-year lending rate is 6.66 percent.

For the first 10 months, retail sales climbed 22 percent from a year earlier to 8.8 trillion yuan, the statistics bureau said. That was up from 16.8 percent for all of 2007.

In the first half, consumption contributed 50.2 percent of the nation's economic growth, investment 44.9 percent and net exports 4.9 percent. Last year, net exports accounted for 21.5 percent.