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Retail sales and production spur optimism

CHINA'S retail sales and industrial production both posted better-than-expected growths in May, countering the sharp fall in external sales and reinforcing the importance of domestic demand in the recovery of the world's third largest economy.

China's retail sales jumped 15.2 percent from a year earlier to 1 trillion yuan (US$146 billion) last month, up from the rises of 14.8 percent in April and 14.7 percent in March, said the National Bureau of Statistics today.

The spending was stronger than the market expectations of an increase of 15 percent and was fueled by government subsidies on cars and household appliances, said analysts.

The May industrial output gained 8.9 percent on an annual basis, up from 7.3 percent in April and 8.3 percent in March, after the country's massive stimulus package started to take effect in the economy.

"Notwithstanding the disappointing trade data in the month, industrial production and retail sales data both beat expectations in May," said Wang Qing, a Morgan Stanley economist.
"In general, the latest dataset suggests that the Chinese economy is finding its way along the recovery track, which remains heavily dependent on domestic demand."

Stephen Green, an economist at the Standard Chartered Bank (China) Ltd, said the recovery will be bumpy until the real-estate sector and exports come back.

"But the real-estate rebound at least looks much more imminent than it did three months ago. The support of Chinese consumers over the next months will be a godsend," said Green.

China's exports plummeted 26.4 percent from a year earlier in May, posting the biggest monthly fall in at least 14 years. It slid further from the drop of 22.6 percent in April and well below analysts' expectations for a contraction of around 20 percent.

Meanwhile, China's urban fixed-asset investment registered a better-than-expected growth of 32.9 percent in the first five months. The property investment in May alone advanced 12 percent year on year, a massive jump compared with just 1 percent in the January-February period.

From the end of last year China has offered subsidies to buyers of big-ticket items, including cars, refrigerators, television sets and washing machines, to stimulate spending.

It helped boost sales of vehicles by 23.8 percent in May. The spending on household appliances increased 12 percent from a year earlier while furniture sales rose 33.3 percent.

At the same time vehicle production expanded 29 percent in May to 1.14 million units and the output of coal increased 9.6 percent to 250 million tons. The production of steel gained 7.4 percent to 57.2 million tons.

A recent report by the Boston Consulting Group said consumers in China and India remained comparatively optimistic despite the troubles in the rest of the world.

"A sizable segment of consumers in both countries continue to trade up for products that offer higher quality or a sense of achievement and social status, and a brand name is still an important incentive," the report said. "Chinese and Indians are willing to spend, but in a more focused and price-sensitive manner."


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