China’s poor retail sales are bad for rebalancing but could be good for a stimulus

A lackluster Lunar New Year.
A lackluster Lunar New Year.
Image: Reuters/Stringer
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Retail sales are the biggest drag on the Chinese economy so far this year, according to the latest China Beige Book (CBB) report, a quarterly survey based on responses from about 2,300 business executives and bankers in February and March.

The drop-off in spending in China is spreading beyond just the luxury goods sector, which has been squeezed by a government campaign against corruption and conspicuous spending by officials. The latest data shows that the proportion of food and apparel retailers who saw higher revenues in the first quarter—a time when sales usually see a bump during the Lunar New Year—fell to 54%, compared to 61% the previous quarter and 73% a year ago; fewer furniture and luxury dealers reported gains as well. Over the new year holiday, firms saw their weakest retail sales in at least three years.

A continued retail slump makes life more difficult for Chinese officials. Chinese premier Li Keqiang has pledged to maintain 7.5% GDP growth this year while simultaneously implementing reforms that can cause a near-term drag on the economy. After a slew of disappointing economic data over the last few months, analysts have revised first quarter GDP estimates lower to an average of about 7.3%. ”The recent economic deceleration has indeed been more than what Beijing is willing to tolerate in the short term,” Societe Generale told CNBC, predicting new stimulus measures.

Beijing hopes to ramp up domestic spending as a way to reduce the economy’s dependence on exports and credit-fueled and state-focused investment. That may be difficult for now. Only 55% of firms surveyed by the CBB said they expect higher revenues over the next half year—the smallest proportion in nine quarters of CBB surveys. On March 20, China’s top supermarket operator, China Resources Ltd, said net profit fell 52% (paywall) last year; executives said the company was looking forward to “when the economy rebounds”—and they’re not the only ones.