China's retail sales grew in August by 17.1% (to RMB 711.7 billion), after last months' 16.4% growth. This was substantially higher than expected and the fastest pace in over three years.
We have certainly wanted to see domestic demand become more important to China's economy as a way of reducing its reliance on the export sector, so this is definitely good news from that point of view. However if we are an inflation-battling mode, rapidly rising consumer demand is not going to help.
Part of the growth in expenditures can be explained by inflation (prices went up so people had to spend more), but it has been underpinned by rising wealth among stock and real estate market speculators, rising disposable income among households (up 14.2% in the cities and 13.3% in the countryside in the first half of this year), and higher minimum wages and expanded welfare payments.
For the first eight months of the year retail sales were up 15.7% over the same period in 2006, to RMB 5.6 trillion.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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