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MNI REALITY CHECK: China Sales To Slow As Base Effect Fades


China's retail sales growth is set to slow in Mar, retail insiders tell MNI, as base effects fade.

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China's retail sales look set to slow in May from the sharp rebounds in recent months driven by the low year ago base comparisons, as an overall willingness to spend has not yet returned to pre-pandemic level and sporadic Covid-19 outbreaks could still disrupt local consumer markets, analysts told MNI.

Overall sales are seen 12.6% higher y/y in May, 5.1 percentage points slower than gains in April, said Su Jian, director of the National Center for Economic Research at Peking University.

The week-long May Day holiday saw 230 million domestic tourists, a rise of 119.7% from a year earlier. Tourism revenue for the period totaled CNY113.23 billion, higher by 138.1% from a year earlier, but still only 77% of the pre-pandemic level, according to data by Ministry of Culture and Tourism.


The holiday helped to drive up catering revenue, Su said, which will support the retail sales growth.

A survey covering one hundred catering companies nationwide conducted by China Hospitality Association showed that average daily revenue during the holiday increased by 27.1% when compared to same period in a more normal 2019. Among which, 8% of the respondents saw revenues increase by over 50% while 44% saw revenues rise by more than 20%.

A further CHA survey covering one hundred hotels showed average daily revenues increased by 33.8% compared to the May Day holiday in 2019. Among which, 21% of them saw revenues rise by more than 50% while half of the respondents saw revenues increase by over 20%.

The CHA noted that spending on catering within hotels rose significantly, as demand for banquets and weddings boom as social restrictions eased.


But the sales of automobile flatlined as the global chip shortage has slowed the pace of auto production, as manufacturers continue to run down inventory, said Li Chao, chief economist of Zheshang Securities, who expects the shortages to work through in the next 1-2 quarters as global chip production capacity recovers.

According to China Passenger Cars Association, retail sales of cars hit 1.62 million in May, rising by 1% y/y but by 3% when compared to May 2019, as the effects of last year's lower base comparison faded.

The launch of new auto models around the Shanghai Auto Show has helped spur car sales, with orders increasing sharply during the holiday, the CPCA said, noting that sales promotions led by the Ministry of Commerce also helped boost the market.

Su thinks the recent underwhelming car sales should have little impact on the overall retail sales as it may not develop into a downward trend on the back of chip shortages, as any shortage from global chip output could be transferred to domestic manufacturing, Su continued.

New local Covid-19 cases were seen in Anhui, Liaoning and Guangdong province throughout May, which could dampen some services consumption, Su added.

With online spending continues to thrive, that may help offset some impact from diminished physical sales. Online sales increased by 29.2% y/y during the holiday, with retail good sales up 28.2%, said Wang Jingwen, a senior researcher at the Pangoal Institution. Wang expects overall retail sales to decelerate to about 11% y/y in May.

The median of analysts' expectation for May retail sales polled by Bloomberg was 14.0% y/y, down from April's 17.7% gain. The data will be released Wednesday, June 16 at 1000 Beijing Time.