China's retail sales boom, but for the wrong reasons - ING

Iris Pang, the economist for Greater China at ING, notes that China's retail sales boomed by 9.8% YoY in June from 8.6% YoY. However, the details tell a different story, she added. 

1. "There are signs that Chinese consumers have become more cautious about spending on leisure trips, signaling that consumers are potentially concerned about their job security and wage growth. Consumer items typically bought on overseas' leisure trips have been bought domestically. For example, cosmetics, usually bought in duty-free shop in airports, grew 22.5% YoY in China compared to 13.2% YoY YTD. The current account shows that outbound tourism spending fell 8.7% year-on-year in 1Q19. Another example is that in Hong Kong, retail sales fell 1.3% YoY in May and have shrunk for four months in a row. We expect retail sales in China will continue to grow at a good rate even that growth is coming for all the wrong reasons.
2. Another reason for the jump in retail sales in June was that China's car dealers cut prices, which boosted car sales 17.2% YoY after sales growth of just 1.2% YoY YTD. But the price cutting promotion can't last for more than a quarter. And together with shrinking production (by 16.8%YoY in June), corporate earnings of car dealers and car producers will suffer."