China’s Monkey Week Boost Demand as Retail Sales Increased

The gloomy Chinese economy has shown a sign of stabilization during “Monkey,” the lunar New Year celebrations as retail sales have surged, suggesting an improvement in domestic demand.

During spring festival last week, China’s retail sales recorded 11.2% year-over-year (YoY) growth, fueled by cinemas, according to the Chinese Ministry of Commerce on Saturday. The retail and restaurant sales surged to $115 billion (754 billion yuan), showing a strong potential of the food industry in the world’s most-populated country.

The Chinese economy last year grew 6.9%, slowest GDP growth rate since 1990, owing to the soft domestic demand in the country. The Chinese authority to uplift domestic demand undertook several measures. Despite the initiatives by Beijing, the Chinese economy is still on a bumpy ride as depicted by recent gloomy economic indicators.

However, the jump in retail sales during spring festival last week depicts that policymaker’s efforts have started paying off. From January, the People’s Bank of China (PBOC) performed massive open market operations to keep the market liquid. In January, it injected net liquidity worth about $188 billion (1.235 trillion yuan), to meet the cash demand during spring festival.

The massive liquidity injections raised concerns among economists, who believe that this week would lead to tightening liquidity as the Chinese central bank has to mop liquidity from the economy. They also believe that increase in retail sales during the spring festival, which started on February 8-13, suggesting demand is picking up pace.

Food demand remained strong during celebrations and medium-sized food retailers saw 10.6% YoY growth as Chinese families preferred to eat food from restaurants. Tourism also recorded modest demand during week-long holidays and nearly 1.62 million foreign tourists visited China in a week-long holiday. Mass catering services also posted record boom as Chinese families hosted reunion dinners.

Analysts believe that the modest growth in demand shows the potential of Chinese consumers. However, they believe that the demand is seasonal and Beijing needs to devise an effective strategy to spur and sustain domestic demand in an attempt to streamline the world’s second largest economy.