Chinese retail sales: fastest growth in 8 months

Chinese economic data

• Chinese retail sales rose by 10.8 per cent annual rate in year to August. The result was above forecasts (+10.5 per cent) and above the 10.5 per cent growth in the year to July.
• Production: Industrial production rose at a 6.1 per cent annual rate in August, below the forecast average (6.4 per cent) but up from the 6.0 per cent growth in the year to July.
• Investment: Urban investment rose by 10.9 per cent in the eight months to August (forecast 11.1 per cent)

What does it all mean?

• Chinese authorities keep talking about the “new normal”. That is, the desire for economic growth to be around 6-7 per cent with household spending the driver of growth as opposed to production of investment. And authorities want to improve social infrastructure rather than economic infrastructure. Many analysts and investors still don’t get it. But the latest data shows that authorities are succeeding in their goals.
• Not only is retail spending continuing to grow at a 10-11 per cent annual pace, but growth in August was the fastest in eight months.
• It is always important to note that consumer spending in the second largest economy on the planet is growing at a double-digit annual pace. And real (inflation-adjusted) spending is up 10.4 per cent over the year. In Australia, “normal” real growth of retail spending is closer to 3 per cent.
• And Chinese consumers are not just buying more goods; they are travelling more often as well. The number of Chinese tourists coming to Australia is growing at a 20 per cent annualised rate.
• The latest Chinese economic data highlights the on-going balancing underway. The good news is that retail spending is still growing at a solid clip and annualised growth of production is showing signs of stabilising. CommSec expects the Reserve Bank to remain on the interest rate sidelines over the next few months.

What do the figures show?

Chinese economic data

• Industrial production rose at a 6.1 per cent annual rate in August, below the forecast average (6.4 per cent) but up from the 6.0 per cent growth in the year to July.
• Crude steel production fell by 3.5 per cent in August compared with a year ago.
• Production of pharmaceutical goods grew at a 10.3 per cent annual pace in August with rubber & plastic product manufacturing up 9.9 per cent, electrical machinery and equipment manufacturing industry production increased by 6.9 per cent, computer, communications and other electronic equipment manufacturing industry production increased by 11.1 per cent.
• Retail sales rose by 10.8 per cent in the year to August. The result was above forecasts (+10.5 per cent) and above the 10.5 per cent growth in the year to July.
• In real terms, spending was up 10.4 per cent in August on a year ago (+10.4 per cent in July).
• Sales of telecom equipment rose at a 29.0 per cent annual rate in July with building materials up 20.7 per cent, gold & silver jewellery up 17.4 per cent, furniture up 16.1 per cent, and home appliances up 8.0 per cent. Petrol sales fell 8.8 per cent due to lower prices while car sales were up just 5.2 per cent.
• Urban investment rose by 10.9 per cent in the eight months to August (forecast 11.1 per cent) and down from 11.2 per cent in July. Investment in fixed assets in the eight months to August was up 11.0 per cent, down from 11.3 per cent in the year to July.
• Fixed asset investment was strongest in Health & social work (+58 per cent), Electricity, heat production and supply industry (up 33.6 per cent) and Water Conservancy, Environment and Public Facilities Management (up 30 per cent).
• Earlier data showed M3 money supply growing at a 13.3 per cent annual pace to August with outstanding loan growth up 15.4 per cent.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• There are no major surprises in the Chinese economic data. Retail sales beat market expectations; production was below expectations but above the July result; and investment slowed more or less as expected.
• Chinese authorities want this current 5-year period to be focussed on improving the living standards of the Chinese people. Investors need to look for areas of the Australian economy to benefit from China’s “new normal” – food, beverages, tourism, education, health, financial services.
• The Reserve Bank will watch developments in China closely. At present there is no cause for alarm and the focus will be on domestic economic fundamentals. CommSec expects interest rates in Australia to stay on hold in coming months.