China's retail sales experienced a modest year-on-year increase of 2.1% in August, a slight decline from the 2.7% growth recorded in July, as reported by the National Bureau of Statistics (NBS) over the weekend. This uptick indicates a cautious approach among consumers, particularly driven by falling property values.
Historically, the months leading up to the pandemic saw China's retail sales consistently experiencing high-single-digit growth percentages. However, the landscape shifted dramatically between 2020 and 2023 due to stringent business and travel restrictions aimed at curbing the spread of COVID-19. As we look to 2024, retail sales have managed to stabilize, yet the growth remains tepid, registering in the low-single digits month-on-month.
Notably, sales in August remained unchanged compared to July. When examined over the January to August timeframe, a modest increase of 3.9% year on year has been observed, the NBS noted. However, consumers are showing reluctance to invest in discretionary goods. According to ING Think, an analytical arm of the Dutch investment firm, several categories related to discretionary consumption faced significant setbacks in August.
The jewelry and gold market saw a decline of 12.0% year on year, while the automotive sector experienced a 7.3% drop, alongside cosmetics sales declining by 6.1%. Moreover, categories associated with the faltering housing market in China also incurred losses. Sales in the furniture segment decreased by 3.7% year on year, and building materials recorded a concerning decline of 6.7% during the 12-month period.
This downturn reflects a growing unease in consumer spending and confidence, as pointed out by ING Think. The state of the residential market is contributing significantly to these economic challenges. Recent data from the NBS reveals that new home prices in 70 surveyed cities have plummeted by 8.3% from their peak in the cycle.
In a parallel trend, secondary market home prices have also seen a substantial drop, decreasing by 14.6% from their zenith. According to ING Think, the ongoing bad news surrounding the property sector is expected to further erode consumer confidence. "Stabilizing home prices is crucial for restoring consumer sentiment," they concluded, highlighting the interconnected nature of real estate dynamics and retail performance in the Chinese economy..