Passenger-vehicle sales trailed analysts’ estimates in July. Sportswear seller Li Ning Co. shut 1,200 stores in the first half and department-store chain Parkson Retail Group Ltd. (3368)’s same-store sales rose at less than a quarter the pace of a year earlier. Gome Electrical Appliances Holding Ltd. (493) said it would report a first-half loss on lower sales.
The reports show an extra drag on the second-largest economy after export growth almost stalled in July and factory output missed forecasts. The year’s fastest decline in industrial companies’ earnings and a stock market at a three- year low mean income gains may slow, giving consumers less money to spend and boosting odds Wen will add stimulus.
“The pressure on retail sales is growing bigger and bigger,” said Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. “When exports are fragile and investment is weak, if companies started to reduce their production or workforce, how can it be possible for consumer spending to stay strong?”
Retail sales missed economists’ forecasts in three of the last four months and Mizuho said they will stay weak. Sales increased 13.1 percent in July from a year earlier, the National Bureau of Statistics said Aug. 9, compared with the median 13.5 percent estimate of 32 analysts surveyed by Bloomberg News.
The Shanghai Composite Index fell 1 percent to the lowest since Feb. 2, 2009, after companies’ reports of profit declines, wiping out yesterday’s gain that was the biggest in three weeks.
The official data include government purchases and aren’t adjusted for inflation or broken down by consumer or government spending. Fiscal spending is rising at a faster clip than retail sales, up 37 percent in July from a year earlier, according to the Ministry of Finance. After adjusting for prices, retail sales rose 12.2 percent in July and 12.1 percent in June, the NBS said.
“Consumers have generally become more conservative in their spending, especially on certain higher-end discretionary products,” Natural Beauty Bio-Technology Ltd., which sells skin-care items in China, said in an Aug. 16 filing with the Hong Kong stock exchange.
Corporate profits and stock markets may be keys to the direction of consumer spending. China’s industrial profits fell in July by the most this year, an Aug. 27 government report showed. A record number of Hong Kong-listed companies since the start of June have predicted lower profit or a loss for a specific period, based on data compiled by Bloomberg News. Shanghai’s stock benchmark is close to the lowest level since February 2009.
Policy makers across Asia may need to consider more stimulus as Europe’s debt crisis hits exports and confidence. South Korea’s current-account surplus rose to a record in July as imports declined, a government report showed today.
In the U.S., the Commerce Department’s first revision to second-quarter gross domestic product may show a gain of 1.7 percent compared with an initially reported 1.5 percent increase, according to the Bloomberg survey median. In the first three months of the year, the economy expanded 2 percent.
In Europe, Italy’s June retail sales rose 0.4 percent from the previous month and data on German inflation are due, while Brazil’s central bank may be poised to cut interest rates for a ninth straight meeting.
“Consumer spending is decided critically by income, and as we can see, China’s industrial profits are falling at a faster speed in July, which means more headwinds for employee compensation, wages and bonuses,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “For non- wage income such as investment income from property and stock markets, you don’t have to be an expert to tell that most people are actually losing money, so overall consumer disposable income is actually very weak.”
Retail sales growth may slow another one or two months before a possible rebound next quarter, Zhang said.
Wen signaled in March that leaders are determined to cut reliance on exports and capital spending in favor of consumption, saying in a speech to legislators that “expanding domestic demand, particularly consumer demand, which is essential to ensuring China’s long-term, steady, and robust economic development, is the focus of our economic work this year.”
Wang Tao, China economist at UBS AG in Hong Kong, said in a report yesterday that “if protecting growth is a more important short-term goal, rebalancing will have to wait.”
The People’s Bank of China cut interest rates in June and July for the first time since 2008 and has lowered banks’ reserve requirements three times starting in November. Authorities have accelerated approval of projects and local governments have announced trillions of yuan of investment- spending goals in the next few years.
Shares of Parkson, based in Beijing with shares listed in Hong Kong, fell 6.5 percent on Aug. 27, the most since October, following the Aug. 24 report of slowing sales. Barclays Plc analysts cut their rating on the company to “underweight” from “overweight” and said earnings in the next 12 months are likely to “remain lackluster.”
At Parkson’s seven-floor Beijing store located across the street from the central bank’s headquarters, Li Ruidong said yesterday that he’s cut back on shopping there and prefers low- end malls to Parkson, whose luxury brands include Armani, Cartier and Hermes.
“My salary can’t catch up with the rise in prices, and I have a daughter to feed,” said Li, 39, a bank employee.
Zhang Hong, a 42-year-old housewife who lives near the store, said she likes to try clothes on at Parkson, then purchase the items online. “I only buy coffee and eat McDonald’s here,” Zhang said.
Wholesale deliveries of passenger vehicles gained 11 percent to 1.12 million units in July, the China Association of Automobile Manufacturers said Aug. 9, compared with the 1.16 million average analyst estimate in a Bloomberg survey. Changchun-based FAW Car Co., which makes passenger cars with Volkswagen AG, said yesterday it swung to a loss in the first half as sales fell 35 percent.
Hengdeli Holdings Ltd. (3389) of Hong Kong, the retail partner of Swatch Group AG in China, said last week it expects sales growth to slow in the second half as shoppers curb spending on luxury watches.
Consumer spending may still contribute more to expansion than other parts of the economy. Compared with volatility in exports and investment, consumption is still a “stable growth engine,” said Zhu Haibin, the chief China economist with JPMorgan Chase & Co. in Hong Kong.
Zhang Ping, the head of the National Development and Reform Commission, China’s top economic-planning agency, said the nation’s growth is stabilizing and policy measures are bearing fruit, the official Xinhua News Agency reported today.
Some companies are counting on the government to aid revenue. Trinity Ltd., the high-end menswear retailer that sells Gieves & Hawkes and Cerruti in China, expects sales to accelerate next year as authorities take steps to boost growth, Managing Director Sunny Wong said Aug. 23. Parkson said China has room to “further adjust its macroeconomic policies.”
At the same time, “consumer confidence has weakened as the overall economic outlook is uncertain,” Zhu said. “The biggest problem at present is weak domestic demand -- if policy efforts can boost corporate sector investment and profitability, consumption may come naturally.”
--Zhou Xin. With assistance from Raymond Liu and Zheng Lifei in Beijing, Brendan Murray in Sydney and James Mayger in Tokyo. Editors: Paul Panckhurst, Scott Lanman
To contact Bloomberg News staff for this story: Zhou Xin in Beijing at firstname.lastname@example.org
To contact the editor responsible for this story: Paul Panckhurst at email@example.com