Consumption Picks Up, But Production Decelerates

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The latest economic indicators are pointing to an upswing in retail activity, with the economic crisis having had little impact on consumption, even as production data remain weak.

The National Bureau of Statistics said on May 13 that retail sales rose 14.8 percent year-on-year in April, or 16.3 percent in real terms when factoring in the April consumer price index contraction of -1.5 percent.

April consumption growth in real terms was 0.4 percentage point higher than the March level and 4.9 percentage points higher year-on-year, reflecting a significant uptick in consumer spending.

It is not yet certain whether real retail sales growth will be sustained as current consumption is being driven by an uptick in housing and autos. If the boost to the economy from these sources loses momentum, then the pressure of growing unemployment and slowing income growth will exert great pressure on future consumption.

Higher base effects will also have an impact on consumption growth. Real growth rate of retail sales averaged 14 percent before May 2008 which accelerated to over 17 percent by January this year.

The growth picture is very different on the production side, with industrial enterprises' April exports by value falling 14.3 percent year-on-year, narrowing from the 16 percent drop in the first quarter. Sliding exports dragged down industrial production growth and highlighted conditions of overcapacity in some industries.

In April, value-added output of the country's major industrial firms – those with annual core revenue of more than five million yuan – rose 7.3 percent year-on-year, 1 percentage point slower than the March growth rate.

In the four months to April, industrial output rose 5.5 percent, held down by negative growth in the steel sector.

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The breakdowns show that real retail sales growth in the hotel and catering sector accelerated 6.5 percentage points, despite nominal growth of 17.9 percent, down 3.5 percentage points year-on-year.

Categories of goods that exceeded the year-on-year nominal growth average of 14.8 percent in April were furniture, cosmetics and automobiles, with furniture reflecting strength in the housing market and the auto industry boosted by government incentives.

Oil and oil products consumption rose just 0.3 percent with demand dampened by stronger oil and petroleum prices.

China's rural subsidy program for home appliances had little effect on consumption. Home appliances and audio/video equipment sales grew 0.6 percent in April while sales of communication equipment plunged 8.4 percent.

Compared to the first quarter, both labor-intensive and capital-intensive sectors saw industrial output growth accelerate in April.

The year-on-year growth of the textile sector increased to 7.8 percent in April from 6.1 percent in the first quarter. Other industries with higher growth include chemical raw material/chemicals manufacturing which saw growth of 9.5 percent in April from 3.7 percent in the first quarter, while the transport equipment manufacturing sector grew at 9.6 percent, against 2.8 percent in the first three months.

April industrial output growth was dragged down by the ferrous metal refining and processing. The sector's output contracted 1.7 percent in April, compared to a rise of 0.3 percent in the first quarter.

Steel product exports continued their decline, falling 59.9 percent year-on-year in volume terms during the first four months, exceeding the first quarter's fall in exports by 4.6 percentage points.

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Of other major products, raw coal and crude oil output rose 7.9 percent and 0.8 percent year-on-year in April, respectively, compared to a 6.3 percent rise and 1.6 percent decline in the first quarter.

Power generation fell 3.5 percent from a year earlier, 1.5 percentage points greater than the decline in March.

April steel output failed to maintain growth achieved in the first quarter, with output of pig iron during the month up 0.4 percent, raw steel down 3.9 percent, and steel products up 2.6 percent, all retreating from first quarter growth rates of 4.3 percent, 1.4 percent and 2.8 percent, respectively.

Cement output was flat in April, while autos surged 17.9 percent, against 3.7 percent in the first quarter.

The gaps between regions in terms of industrial output narrowed in April with an uptick in growth momentum in the country's central and western regions.

Industrial output in eastern China grew 6.7 percent year-on-year in April, down 0.9 percentage point from March.

Western China's output growth was 12.7 percent, making it the fastest-growing region, but still 3.2 percentage points lower than the previous month. Growth fell by 0.1 percentage point month-on-month to 5.5 percent in central China.

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