Macroeconomic indicators - Slumping retail sales suggest China is tipping into recession
Forbes reported that manufacturers are seeing big sales increases in China while retailers in the country are struggling, losing money, closing stores, going out of business.
Car companies, for instance, are in love with the country. The China Association of Automobile Manufacturers reported bellwether passenger car sales jumped 13.4% in the first seven months of this year over the same period in 2012.
Car dealers, however, are not so enamored. Look under the hood, and it’s not hard to see why. Last year, they were selling autos fast and furiously and carried, on average, only two weeks of inventory. This year, they have at least three months of stock in the showrooms, in part because manufacturers, wanting to keep factory lines humming, are requiring them to hold that amount on hand. Some unfortunate car retailers are, at the moment, stuck with five months worth of cars.
Auto manufacturers are also benefiting from independent dealers gaming the system. Some of them are actually buying cars shipped to their showrooms so that they qualify for manufacturer incentive payments.
In a few instances, desperate dealers are going to absurd lengths to qualify for the bonuses. One showroom in China will let you drive away a car after making a down payment. That doesn’t sound unexceptional until you hear the other terms: you will never make another payment on your loan, you will get your down payment back in two years, and you will then own the car free and clear. The dealer, incredibly, can make this arrangement work through a combination of manufacturer zero-down financing and incentives for reaching sales targets, yet the too-good-to-be-true terms indicate the car industry is approaching shaky ground.
The problem in autos also plagues other sectors. The biggest disparity between manufacturer sales versus dealer sales is among European luxury brands, especially those in high-end fashion and cosmetics. Luxury sales surveyed by J Capital Research in the period from June to early August show a falloff of 20% across China. Anne Stevenson-Yang of that survey firm said that “Durable goods appear to be stacking up in warehouses all over the country, a phenomenon that illustrates some of the distorting effects of engorging an economy on credit.” Brand owners can manufacture beyond reasonable requirements because credit is available and cheap.
In China, the name of the game is market share, and state banks are willing to support the ambitions of brand owners to produce in excess of demand. That means, among other things, that Beijing’s retail sales number does not reflect the state of consumerism in China. In fact, the National Bureau of Statistics includes in this closely watched figure items when they are shipped from the factory, not when they are sold to end users. That’s one of the reasons why NBS can claim that retail sales climbed a robust 13.2% in July from a year ago.
Source – Forbes