MNI REALITY CHECK: China July Sales May Edge Down On Outbreaks

China's retail sales likely slowed further in July as local outbreaks of Covid-19 cases dampened some traveling and catering expenditure during the summer vacation season, while spending on big-ticket items, especially cars, saw only limited improvement, industry analysts told MNI.

"Retail sales may further decelerate to about 11% y/y in July from June's 12.1%," said Wang Jingwen, a senior researcher at the Pangoal Institution.

The epidemic resurgence in some cities across Yunnan and Jiangsu provinces throughout July may have some impact on close-contact services, including summer tourism. In addition to the epidemic, extreme weather, including heavy floods in Henan province, dampened incomes in some rural areas, according to Su Jian, director of the National Center for Economic Research at Peking University.

DISRUPTED TOURISM

At end-July, Zhangjiajie, a famous vacation destination in Hunan Province, was the latest Covid-19 hotspot, with cases related to the outbreak reported in a few provinces.

All tourist spots in Zhangjiajie were shut down, and residents and visitors were not allowed to leave the city to help curb the spread of the Delta variant. "We were offered a paid leave and stay at home right now," said a staff member at the Western Hunan (Zhangjiajie) China International Travel Service.

Before the July outbreak, tourists signing up for group travel was comparable to pre-pandemic levels, the staff member said, with many tourists unable to travel abroad enjoying staycations, with many seeking better quality services -- upgraded hotels in their packages even with increased costs -- the staff member said.

The outbreak, however, will cause losses for travel agencies in Zhangjiajie, with no idea when businesses will restart. "The travel season will soon end, as July and August are normally the busiest months," the staff member said, expecting little improvements even following a restart.

Problems are not only in Zhangjiajie. Nanjing city in Jiangsu province also locked down following further outbreaks, with the airport, bus stations, cinemas and gymnasiums closed. However, Zhang Yu, chief analyst of Huachuang Securities believes anti-pandemic measures taken by Nanjing may have less than 0.2% of the impact on the overall retail sales, as its sales volume accounts for about 1.5% of China's total sales.

CAR SALES

The global chip shortage continues to weigh on auto production, with several automakers announcing cuts or suspended production in July.

According to China Passenger Cars Association, retail sales of cars hit 1.5 million in July, falling by 4.9% m/m or 6.2% y/y given to the high comparison base in the second half of 2020, but rising by 1% y/y when compared to the more normal July 2019.

The wholesale sales of some auto companies have plummeted in recent months, resulting in unbalanced order demand and existing inventory faced by some auto dealers, and thus leading to weak retail sales, the CPCA said. The wider spread of Delta variant since late July has certainly impacted production and restrictions in some automaking towns could further pressure supply in August and may dampen sales in some regions, the CPCA added.

In all, as national household income continues to recover and the job market improves, it will support overall consumption, said Wang.

The median of analysts' expectation for July retail sales polled by Bloomberg was 10.8% y/y, down from June's 12.1% gain. The data will be released Monday, August 16 at 1000 Beijing Time.