China retail sales are finally growing—but remain the ‘weakest link’ in China’s recovery

Retail sales in China grew in August for the first time since the outset of the pandemic at the start of 2020, heralding China’s continued economic recovery following the coronavirus-sparked slowdown.

Total retail sales of consumer goods grew 0.5% year-on-year last month, according to China’s National Bureau of Statistics. Retail sales in the first eight months of 2020 dropped 8.6% compared to the first eight months of 2019.

Despite the return to growth, retail sales momentum “remains the weakest link” in China’s economic recovery, Louis Kujis, head of Asia economics for consultancy and research firm Oxford Economics, said in an email.

Other metrics, like investment and industrial production growth, have shown stronger signs of recovery. China’s industrial production—which measures mining, manufacturing, and utilities activity—grew 5.6% year-on-year in August, higher than some analysts had estimated.

“Private consumption is lagging as consumers remain cautious about spending amid the pandemic,” according to a Tuesday report from China Renaissance Securities, an investment bank.

Sales of cosmetics grew 19%, car sales grew 11.8%, and sales of household appliances grew 4.3% year-on-year in August. Online retail sales overall increased 13.3% year-on-year, slightly slower than July’s 18.8% growth. Restaurant and catering sales fell 7% year-on-year in August, a slower pace than July’s 11% drop and June’s nearly 33% decrease.

Consumer spending—which typically accounts for over 60% of China’s gross domestic product (GDP) growth, according to McKinsey—has been a focus of government efforts to revive the economy in the wake of the pandemic slowdown.

When China began to ease domestic travel and lockdown restrictions in April, China’s city and provincial governments launched promotional campaigns to stimulate consumer spending. In August, China President Xi Jinping outlined a government plan for a more self-sufficient economy that hinges on the growth of domestic consumption.

“We expect household consumption to gather pace as the domestic impact of COVID-19 fades out,” Kujis said. “But we are still waiting for signs of a more significant improvement in employment, which could provide a more solid underpinning for consumption.”

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