Financial thoughts

China's retail sales rose 21.6 percent in May, close to the fastest pace in nine years, as the strongest earthquake in half a century, a stock-market slump and the scrapping of a week-long holiday failed to cool demand.

Sales soared to 870.4 billion yuan ($126 billion) after gaining 22 percent in April, the statistics bureau said today. Last month's 7.7 percent inflation rate swelled the numbers.

Automobile sales jumped 32 percent from a year earlier as incomes surged. Retail sales grew seven times faster than the pace in the U.S. and followed a stronger-than-estimated gain in exports, underscoring the strength of the world's fourth-biggest economy as global growth slows.

“Domestic consumer demand is surely becoming an increasingly important growth driver,'' said Denise Yam, an economist at Morgan Stanley in Hong Kong. The pace was “despite the shortened Labor Day holiday, earthquake mourning and the stock-market correction,'' she said.

The yuan traded at 6.9041 versus the U.S. dollar as of 3:57 p.m. in Shanghai after closing at 6.9075 yesterday.

The CSI 300 Index of stocks fell 3.4 percent today, falling below 3000 for the first time since April 2007 and extending its decline this year to 44 percent.

The median estimate of 22 economists surveyed by Bloomberg News was for a 21.7 percent increase in retail sales.

Tents, Noodles

Sales of construction materials rose 9.3 percent in May after a decline in April, a rebound possibly connected with quake relief work, Yam said. Survivors have been supplied with 1.1 million quilts, 4.8 million beds and 14 million pieces of clothing, the government said yesterday. Citizens have also donated tents and noodles.

Growth moderated in sales of cosmetics, jewelry and household electronics. Japan's Sony Corp. and Sharp Corp. said this month that national mourning was likely to cool demand for some products. The gain in automobile sales was after a 25.7 increase in the previous month.

April's retail-sales increase was the fastest since Bloomberg data began in 1999. In May, the government replaced a week-long break, introduced in 2000 to boost tourism and consumption, with a three-day holiday.

“Robust income growth is supporting strong domestic demand,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Like consumers around the globe, the Chinese are seeing their household budgets pinched by inflation — that doesn't seem to be holding them back.''

Audi's Expansion

Urban disposable incomes for the first quarter climbed 11.5 percent from a year earlier to 4,386 yuan ($635).

Audi AG, the luxury-car brand of Volkswagen AG, said this month that it will build a production line at a VW factory in China as it seeks to double sales in the nation within seven years.

Tingyi (Cayman Islands) Holding Corp., China's biggest maker of packaged food and producer of the “Master Kong'' brand of instant noodles, reported a 44 percent jump in first-quarter sales from a year earlier.

The retail sales data came two days after statistics showing exports surged 28 percent in May after a 22 percent gain in April. In a June 3 statement, the central bank played down the threat that overseas shipments will collapse, causing an economic hard landing. A “drastic'' export slowdown won't come soon, it said.

The Organization for Economic Cooperation and Development cut on June 4 its forecast for global growth this year to 1.8 percent. It said China's economy will slow to a 10 percent expansion after growing 11.9 percent in 2007.

China's retail-sales growth compares with the 3 percent increase in the U.S. in May from a year earlier, reported by the Commerce Department yesterday.

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