China's Retail Sales Rise at Fastest Pace Since 1999

By Paul Panckhurst and Nipa Piboontanasawat

Aug. 13 (Bloomberg) -- China's retail sales expanded at the fastest pace in at least nine years in July as incomes and prices climbed in the world's fastest-growing major economy.

Sales climbed 23.3 percent to 862.9 billion yuan ($126 billion) after gaining 23 percent in June, the statistics bureau said today. That was more than the 22.4 percent median estimate of 19 economists surveyed by Bloomberg News.

Buoyant domestic demand adds to an unexpected surge in China's exports last month in underscoring the strength of the economy as global growth weakens. Spending on petroleum products soared 55 percent, while jewelry sales climbed 44 percent and those for cosmetics rose 32 percent.

``The recent rush of suggestions that China's economy is in trouble must be looking rather shaky,'' said Mark Williams, a London-based economist at Capital Economics Ltd.

Last month's 6.3 percent inflation boosted the retail numbers.

Sales growth in China by Louisville, Kentucky-based Yum! Brands Inc., the owner of the KFC and Pizza Hut chains, ``continues to hit the ball out of the park,'' Chief Executive Officer David Novak said July 17, citing a same-store increase of 14 percent. Inflation, including higher prices for chicken, has shaved margins.

Today's data comes two days after figures showing exports climbed 26.9 percent in July, accelerating from 17.2 percent in June, easing concerns that overseas shipments would plummet as the global economy cooled.

China aims to increase consumption to reduce dependence on investment and overseas shipments for economic growth.

Rising Incomes

Urban disposable incomes increased 14.4 percent in the first half, or 6.3 percent after stripping out inflation.

``Income growth is robust and there's no sign that inflation has eroded consumers' purchasing power,'' said Paul Cavey, an economist at Macquarie Securities Ltd. in Hong Kong. ``Retail sales should keep growing steadily.''

China's biggest retail sales gain since Bloomberg data began in 1999 came even as inflation played a smaller role in raising the figures. The cost of food, especially pork, a staple of the Chinese diet, rose more slowly in July than the previous month. June's overall inflation was 7.1 percent.

Meanwhile, the boost to retail sales from the influx of athletes, spectators and officials for the Olympic Games may be countered by restrictions that limit car owners in Beijing to driving on either odd- or even-numbered days to limit pollution, said David Cohen, director of Asian forecasting at Action Economics in Singapore.

A salesman at a Prada SpA store selling clothes and bags in downtown Beijing echoed that view.

``There have been a lot more foreign customers since the Olympics opened,'' said Xu Jia, 24. ``There are fewer Chinese customers because the odd-even driving rule has made shopping inconvenient.''

To contact the reporters on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net; Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net