China Retail Sales Grow at Fastest Pace Since 1999 (+18.1%)

China Retail Sales Grow at Fastest Pace Since 1999 (Update2)

By Nipa Piboontanasawat

Dec. 12 (Bloomberg) -- China's retail sales increased at the quickest pace in at least eight years on rising incomes, aiding government efforts to curb the economy's dependence on exports and investment for growth.

Sales climbed 18.8 percent to 810.5 billion yuan ($110 billion) in November from a year earlier, the statistics bureau said today, after rising 18.1 percent in October. That was the biggest gain since 1999, according to Bloomberg data.

Stronger domestic consumption may help the world's fourth- largest economy weather weaker demand for exports in a global slowdown. Automobile sales climbed 35 percent, a boost for companies such as Geely Automobile Holdings Ltd., and furniture spending soared almost 60 percent.

``Today's number signals that there is strong growth in household demand,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. ``This can help pick up some of the slack as export growth slows next year.''

Inflation boosted the sales figure, which topped the 18 percent median estimate of 21 economists in a Bloomberg News survey. Consumer prices rose 6.9 percent in November, the quickest pace in 11 years.

Household spending accounted for 36 percent of China's gross domestic product last year compared with more than 50 percent in the U.S., Japan and India.

Export Slowdown

China's economic growth is likely to slow to 10.7 percent in 2008 from 11.4 percent this year on reduced demand for exports, according to the Organization for Economic Co-operation and Development.

A significant global slowdown may reduce the need for economic tightening in China, ``creating a healthier environment that would foster the needed shift toward more sustainable, domestically-driven growth,'' said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong.

Cosmetics sales rose 33 percent. Avon Products Inc., the world's largest door-to-door cosmetics seller, said sales of skin cream and lipstick in China helped to boost third-quarter profit.

For the first 11 months, retail sales rose 16.4 percent from a year earlier to 8.02 trillion yuan, the statistics bureau said. Sales in urban areas jumped 19.2 percent in November from a year earlier, while rural spending climbed 18 percent.

Inflation's Role

A ``large part'' of this month's spending growth was due to inflation, said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong.

Food and fuel costs are driving consumer-price gains. Spending on meat, poultry and eggs jumped 45 percent in November from a year earlier. For grains and edible oils, the gain was 48 percent. Spending on petroleum products climbed 22 percent.

China has raised minimum wages and reduced a tax on interest income to fatten consumers' wallets. Disposable incomes among urban households, after adjusting for inflation, rose 13.2 percent to 10,346 yuan in the first nine months from the same period a year earlier.

Earnings in rural areas climbed 14.8 percent to 3,321 yuan.

Wal-Mart Stores Inc., the world's biggest retailer, this week said it had won approval to open its 100th store in the Asian nation.

BLOOMBERG