China Economic Update: November 2018

Hands in pockets: Chinese consumers are confident but that doesn’t show up in retail sales data

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  • China’s retail sales data are closely watched, providing something of a pulse check on the transition from industrial-led growth towards consumer-led growth. Recent months have seen a significant softening trend in retail sales – to the weakest levels in over fifteen years – despite measures of consumer confidence remaining near record highs. While there are some limitations with the retail sales measure, these don’t appear to explain this disconnect.
  • Overall growth in retail sales has been generally trending downwards since peaking in mid-2008, dropping below double-digit rates in late 2017. When adjusted for retail price inflation, the slowdown in retail sales has been a little stronger – with growth at just 5.8% yoy in October, the weakest rate of growth since May 2003 and slower than the overall rate of growth of the economy in the third quarter.
  • The weakness in retail sales data is in stark contrast to the strength in consumer confidence. The measure produced by the National Bureau of Statistics (NBS) started to strengthen from neutral levels in the early months of 2016, reaching its highest levels in almost a quarter of a century in February 2018. While confidence has eased since this time, the level recorded in October remains historically high.
  • The NBS Household Survey highlights the outsized growth in spending on healthcare and residence costs, which limit discretionary spending elsewhere. This has likely contributed to the slowdown recorded in retail sales
  • The lack of disaggregation in retail sales data – particularly between public and household purchases and the exclusion of some key service sectors – means that the measure does not provide a sufficient clarity around trends in private consumption. That said, the underlying trends in retail sales at least point towards the direction of consumption, providing a more timely indicator than either the annual expenditure measure in GDP or quarterly survey results.

For further details, please see the attached document: