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Online Sales to Seize Bigger Chunk of China’s Retail Sales

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Jan. 19 2016, Updated 1:03 p.m. ET

China’s retail sales up by 11.0% in October

Consumer spending accounted for about 58.4% of China’s GDP (gross domestic product) in the first three quarters of 2015. According to the National Bureau of Statistics of China, total retail sales of consumer goods stood at 2,827.9 billion yuan ($444.2 billion) in October 2015, up 11.0% in October year-over-year compared to 10.9% in September.

The iShares China Large-Cap ETF (FXI) and the Direxion Daily FTSE China Bull 3X ETF (YINN) fell 4.4% and 32.4%, respectively, as of November 11 from a year ago.

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Communication appliances led the increase in retail sales in October

The increase in China’s retail sales was mainly due to an increase of 36.6% in sales of communication appliances, followed by increases in building materials, office supplies, and furniture by 19.7%, 15.5%, and 12.4%, respectively. Retail sales for cosmetics and personal care also rose by 10.6% and 10.1%, respectively, from a year ago. Automobiles rose by 7.1% over the same period.

Rural retail sales increased more than urban areas

Retail sales are primarily driven by an urban population that accounts for 86.5% of the total retail sales. However, rural retail sales grew at a faster pace, with an increase to 12.2%. Urban retail sales increased to 10.8% in October in the last 12 months.

In terms of consumption patterns, catering services increased 12.8% and retail sales of goods rose 10.8% year-over-year in October.

Online sales pick up in China

Online retailers such as Alibaba Group (BABA), eBay (EBAY), Amazon.com (AMZN), and E-Commerce China Dangdang (DANG) may gain momentum with more consumers attracted to online platforms for shopping. From January to October, online retail stood at 2,948.4 billion yuan ($463.1 billion). It increased 34.6% year-over-year. Of this, online retail sales of physical goods increased 33.0%, and non-physical goods increased 43.1%. Of the online retail sales of physical goods, food, clothing, and other commodities rose 41.2%, 24.4%, and 36.2%, respectively.

The Chinese economy is struggling with a slowdown. However, an increase in retail sales implies that consumer sentiment is improving in China. This may further boost overall economic sentiment and may help achieve the GDP target of 7.0% going ahead.

In the next article, we’ll see whether better retail sales are accompanied by strong industrial production data.

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