China: Retail Sales and Industrial Output

Two interesting pieces of information from China this week. In the first place retail sales are growing fast:

China retail sales grew 14.1 percent in November from a year earlier as rising incomes spurred consumer spending in the world's fastest-growing major economy.

Sales rose to 682 billion yuan ($87 billion) after gaining 14.3 percent, the fastest pace in almost two years, in October, the Beijing-based National Bureau of Statistics said today. Economists surveyed by Bloomberg News expected growth to remain unchanged from October.

Chinese consumers are spending more as the government raises minimum wages and increases welfare payments. Gome Electrical Appliances Holdings Ltd. and other retailers are benefiting from Premier Wen Jiabao's efforts to stoke consumption to make the economy less dependent on exports and investment in factories.

So one leg of the rebalancing process - the rise of domestic consumption - may be starting to fall into place .

So what about the other one, the export driven investment boom? Well the rate of growth in industrial output is certainly slowing:

China's industrial production growth held close to a two-year low in November, suggesting the government is achieving a gradual slowdown in the world's fastest-growing major economy.

Output rose 14.9 percent from a year earlier to 793.6 billion yuan ($101 billion) after climbing 14.7 percent in October, the National Bureau of Statistics said today. The figure may ease concern that the effects of a government clampdown on investment are waning after exports surged to a record last month, aggravating tensions with trade partners.

China's economy grew 10.4 percent in the third quarter, slowing for the first time in a year. The economy expanded 11.3 percent in the prior three months, the fastest pace in more than a decade.

Exports in November surged by 32.8 percent, matching the largest gain in a year. Retail sales growth stayed close to October's almost two-year high. Consumer prices rose by the most in 20 months, while producer-price inflation unexpectedly slowed.

So now the possibility exists that these excesses are rebalancing themselves. The next question is, if that is the case how will the slowdown in the acquisition of machinery and equipment affect the two major prior beneficiaries, Germany and Japan? Will they feel the squeeze, or will they simply move on to India?