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China July Retail Sales Growth of 8.5% Disappoints

SHANGHAI–July national retail sales in China grew 8.5 percent compared to a year ago, missing expectations as the Delta variant virus outbreak and flooding in Henan weighed on the economy.

While it was a disappointing month–analyst consensus was for 11.4 percent growth–the numbers were still above 2019 levels. Total sales of consumer goods in July amounted to 3.5 trillion renminbi, up 7.2 percent compared to the same time two years ago.

In July, apparel was up 7.5 percent but beauty sales were dismal, growing just 2.8 percent. Daily household goods tracked better, rising 13.1 percent as did jewelry, up 14.3 percent. Online retail sales, which account for 23.6 percent of total retail sales, increased by 17.6 percent year-on-year.

For the year to July, sales increased 20.7 percent year over year.

The slower-than-expected month was impacted by the severe flooding in the central province of Henan in mid-July which saw over 300 fatalities and close to 2 million people evacuated or relocated. Meanwhile, local clusters of the Delta variant have led to tightening measures, halting domestic travel as some regions reinstate inter-city quarantines and companies prohibit employees from non-essential travel, alongside the cancellation of many large events.

“We see few positive factors for the economy, instead, we see more risk factors,” said a note from ING Bank’s greater China chief economist Iris Pang. “There have been more floods in China. The Delta COVID-19 variant is spreading in the Mainland, although the number of cases remains fewer than 200 per day. Strict social distancing measures have affected the ports in Ningbo and Shanghai, which are close to each other…Strict social distancing measures also limit people flows around the Mainland, which limits domestic leisure travel and spending during the summer holidays.”

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Fu Linghui, National Bureau of Statistics spokesperson, downplayed concerns of a slowing recovery in a press conference. Fu noted that in the first half of the year, the actual growth rate of disposable income per capita was 12 percent year-on-year, while per capita consumption in that same time period increased by 17.4 percent, indicating people’s willingness to spend.

“Due to short-term factors, market sales have slowed down but consumption recovery is expected to continue. With the continuous expansion of vaccination and the effective implementation of precise prevention and control, the consumer market is expected to maintain overall stability,” Fu said. “It should also be noted that the expansion of employment and the increase in residents’ income are also conducive to the improvement of consumption capacity, and consumption is expected to maintain a stable recovery trend in general.”

 

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