MNI EXCLUSIVE: China Retail Sales Seen Growing Again In June

--Sales To Turn Positive In June, Advisors Say

--Longer-Term Gains May Require Support For Consumers

     BEIJING (MNI) - Retail sales in China are set to register positive growth

for the first time this year in June as consumers largely shrug off concerns

about coronavirus and return to buying everything from automobiles to cosmetics,

government-linked researchers told MNI, but one added that longer-term gains may

require more support for personal income.

     "Goods consumption is nearing pre-pandemic levels and service consumption

is slowly recovering. Growth of total retail sales is likely to turn positive in

June," Guan Lixin, a senior researcher affiliated with the Ministry of Commerce,

told MNI in a written interview.

     Guan's upbeat assessment was based on positive momentum seen last month.

Retail goods sales declined 0.8% y/y in May, narrowing from a 4.6% decline in

April, with 80% of goods sales turning positive, MOFCOM data showed. Sales of

vehicles jumped to a one-year high 3.5% growth.

     Underpinning increasing consumption is continued progress in controlling

the pandemic, allowing faster resumption of production and commerce, Guan said.

Government policies boosting domestic demand and spending incentives also helped

propel recovery of the consumer market, she said.

     Pockets of resurgence of infections in cities such as Beijing have failed

to significantly dent consumers' desire to spend, Guan and other researchers

told MNI.

     The impact was limited as Beijing reacted quickly to contain the spread of

the virus, said Zou Yunhan, deputy researcher at the Economic Forecasting

Department of the State Information Center.

     --SERVICES LAG

     But Guan acknowledged that consumption of services, such as dining and

entertainment, has lagged goods sales, due to continued virus-related

restrictions. Movie theatres and sporting venues remain shuttered by authorities

and restaurants are still required to operate at less than full capacities.

     The full-year retail outlook may also be impacted by the pandemic situation

overseas, said Guan, whose formal title is deputy director of circulation and

consumption at the Chinese Academy of International Trade and Economic

Cooperation.

     While the improvement of retail sales is better than expected, there are

concerns about its medium-term sustainability, said Zou. Spending on some items

like communication equipment has shown signs of weakening, and the outlook for

car sales depends on whether employment can be assured to support disposable

incomes, she said.

     Given the epidemic, policies should shift focus to safeguarding consumers'

income and their daily spending, which ultimately supports consumption as a

stabiliser of growth, said Zou, who suggested increasing cash subsidies for low

earners, and expanding personal tax deductions for the middle class.

     "The key still lays in safeguarding employment," Zou added.

     Chinese consumption may be recovering even better than retail sales

indicate, said Xu Qiyuan, director of the Economic Development Division at the

Institute of World Economics and Politics under the China Academy of Social

Sciences.

     Noting that retail sales data include some public and corporate spending

while omitting services such as communication and postal services, he calculated

consumption fell only about 8% y/y in the first quarter, when retail sales slid

by 19%.

     "Although consumption still dropped significantly in Q1, its recovery was

far better than what was reflected in the retail sales figure," said Xu.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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