Chinese retail sales slow sharply

Growth in China's retail sales slowed sharply in the first two months of the year, partly due to the government's frugality campaign. Retail sales grew 12.3 percent year on year to 3.78 trillion yuan (602.1 billion U.S. dollars) in the first two months of the year, a sharp decline from the 15.2-percent rise in December, the National Bureau of Statistics (NBS) said Saturday. The growth was also much lower than the 14.5-percent target the government expects for 2013. The catering sector reported 403 billion yuan in revenues, up 8.4 percent year on year but down 6.7 percentage points from the growth rate in December, the NBS data showed. Notably, retail sales by businesses above a designated size was the only item in the table to log negative growth, down 3.3 percent year on year, partly as a result of central government's anti-extravagance drive during the period. Upscale restaurants in cities such as Beijing, Shanghai and Ningbo saw revenues fall by 35, 20 and 30 percent, respectively, year on year in January, Ministry of Commerce spokesman Shen Danyan said at a press conference last month. After being adjusted for inflation, retail sales went up just 10.4 percent in the first two months. Zhao Ping, a researcher with the Ministry of Commerce, said the growth rate of retail sales may range between 13 percent to 14 percent in the first half of the year, considering the tempered economic growth and rising inflation. The weak retail data came amid robust growth seen in China's fixed asset investment, which grew 21.2 percent year on year, outpacing the 20.6-percent rate for the full year of 2012 and the 18-percent rise the government has envisioned for this year. "The data show that China's economic recovery is still relying heavily on the investment-led model, and local governments are keen to ramp up investment at the beginning of the year," said Liu Ligang, an economist at ANZ National Bank Ltd. After years of rapid growth generated by investment and exports, China has been looking to shift the focus to consumption. Given the "fundamental" role of consumption and the "key" role of investment in driving economic growth, Premier Wen Jiabao on Tuesday advised the upcoming government to "unswervingly" take expanding domestic demand as the government's long-term strategy for economic development. Last year, consumption contributed to about 51.8 percent of China's gross domestic product growth, while fixed-asset investment helped drive around 50.4 percent. Exports took up a negative-2.2 percent, the NBS data showed. In some developed countries, consumption generally contributes to about 70 percent of GDP growth. To balance the ratio, China's top economic planning agency, the National Development and Reform Commission (NDRC), has promised to raise the income of low- and middle-income groups, set up a sound mechanism for regularly increasing workers' wages, raise farmers' income and improve the social security system that covers both urban and rural residents. If the NDRC manages to deliver on its promises, consumption will gradually gain traction, analysts say.