MNI REALITY CHECK: China Sales Seen Up As Restrictions Ease

China's retail sales are expected to edge higher in September, helped by the ongoing pick up in auto, hospitality and traditional bricks and mortar spending as social distancing rules ease, industry insiders and analysts told MNI.

"Auto consumption remained relatively strong in September even after the traditional peak around back-to-school season, partly reflecting changes in lifestyle in the post-epidemic era," said Wang Jingwen, a senior researcher at the Pangoal Institution.

According to China Passenger Cars Association, retail sales of passenger cars hit 1.91 million in September, a rise of 7.3% y/y, with growth near 8% for a third consecutive month, the highest levels in two years, albeit off a low 2019 base.

Analysts from Huachung Securities note there could be less of a base effect in September than in August, so overall auto salesgrowth is unlikely to rise significantly but could maintain August's momentum.

HOSPITALITY GAINS

Revenues across the catering sector are expected to contract again in September, likely declining 4% y/y, better than the 7% fall in August, Huachung's analysts said.

"Both traffic in store and revenues in September have recovered to only 50% of the level in the same period last year," said an owner of a hotpot restaurant in Beijing who asked for anonymity.

She joined this national hotpot band as one of its franchise stores last year with three other newly opened restaurants but none of them survived the epidemic, leaving hers the only one in Beijing offering dine-in services.

The owner noted sharply reduced income on the pre-pandemic levels, with staffing running at less than 50% of those seen last year. Though most restaurants have expanded their food delivery service during the epidemic, "the volume of online orders this year are still hard to trump last year when we were often overloaded," she said.

The restaurant owner expects a rebound by the end of the year when people in a holiday mood may be more willing to spend, but the uncertainty of a second wave of the epidemic still overshadows both the proprietor and consumers.

OFFLINE SPENDING

Other offline spending, such as on jewelry and clothing, bounced back in August to growths of 15.3% and 4.2% y/y respectively, which could indicate traffic in shopping malls has basically returned to normal, with Zhang Bin, a senior analyst at Win Data, a big data platform serving real estate developers and retail business nationwide, noting footfall in many major cities back at levels seen in Q3 2019.

According to Zhang, 90% of retailers had reopened by June, with the number expected to hit 100% by the end of the year. However, sales are running at a slower recovery rate, just at 70 to 80% of pre-pandemic levels currently.

He also noted vacancy rates in shopping malls continued to recover, standing at 13% in September, down 1.5 pps on August, but above the 8.4% seen a year ago.

September's box office spend was CNY2.43 billion, data by Maoyan Entertainment showed, still short of the CNY3.24 billion in the same period last year given that cinemas are only allowed to open 75% of the seats.

Wang noted that the Ministry of Commerce led a nationwide promotion starting from early September. In the first two weeks of the event, the total national consumption of goods and services was about CNY1.9 trillion, a rise of 7.4% m/m, according to a statement on the ministry's website.

Wang expects retail sales may rise by 2.0% y/y, accelerating from August's 0.5% gain.