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Retailers, Inland Regions Drive China Economy in Q1 – Beige Book Survey

Reuters | March 27, 2013 | 3 pages

BEIJING, March 27 (Reuters) – China’s retailers and inland regions were the main drivers of economic growth in the first quarter of 2013, implying that the rebalancing of activity sought by the government may be taking hold, according to the findings of a new national survey.

Revenue growth in the retail sector outstripped all other business segments in the first three months of the year, with 73 percent of respondents to the China Beige Book survey reporting better numbers than the 61 percent seen in the fourth quarter and the 63 percent recorded in the first quarter of 2012.

But the survey of more than 2,000 executives published on Wednesday also raised warning flags, as input and output prices accelerated along with wages to suggest a return of inflationary pressure.

A fall in corporate loan demand despite easy monetary policy was another sign of economic uncertainty.

“It will be a challenge to broaden the (economic) expansion without deepening inflation,” said Leland Miller, President of CBB International, which publishes the survey, said in a statement.

“Looser money with less corporate borrowing is not a good combination. The key may be a more inclusive bond market,” he added, pointing to survey data showing private sector firms remain largely excluded from China’s fledgling credit market.

The China Beige Book survey, based on the U.S. Federal Reserve’s economic report of the same name, underscores official data suggesting that the world’s second biggest economy is building a recovery from 2012’s dip in growth to 7.8 percent – its slowest in 13 years.

But it also signals that the recovery is more widespread among China’s peripheral regions – those with some of the widest gaps between urban rich and rural poor and which the incoming leadership duo of President Xi Jinping and Premier Li Keqiang have pledged to close.

First quarter revenues at firms in central China rose 22 percent from the same period a year earlier, while those in the north rose 20 percent. They increased 17 percent in the northeast and 15 percent in the southwest.

Revenues at firms in export-centric Guangdong meanwhile fell 11 percent over the same period and declined 8 percent in Beijing, according to the survey that compares conditions with the previous quarter and asks respondents to anticipate conditions three and six months ahead.


Despite its ranking as the second-largest economy globally after three decades of stellar growth, China remains an aspiring middle-income country riven with inequality. It has one of the widest gaps in the world between rich and poor and is heavily dependent on state-backed investment for economic expansion.

Sales revenue in the first quarter climbed for 66 percent of service sector respondents, up 12 percentage points from the fourth quarter. This was just short of the peak of 70 percent in the first quarter of 2012, and outpaced manufacturing for a fifth straight quarter.

Manufacturing revenue increases were reported by 51 percent of the sample, up just one percentage point on the previous quarter, but were almost 10 points lower than a year ago, when 60 percent of respondents reported higher revenues.

Sales increases among manufacturers have been lower than those in the services and retail sectors for more than a year, suggesting to the CCB survey team that traditional drivers of growth in China are shifting.

But while rebalancing in the broad economy may be gaining pace, the survey findings imply that rebalancing is not yet taking hold in how economic activity is financed.

Reported company borrowing fell, with just 31 percent of respondents taking out loans in the first quarter, down two percentage points on the quarter and nine points on the year.

“Corporate loan data continue to flash yellow,” a statement of survey findings said.

Meanwhile, the lack of private sector access to corporate bonds meant that too many firms were forced to find credit in the extremely expensive non-bank “shadow financing” sector.

The survey sample includes executives from manufacturing, retail, service, transport, real estate and construction, farming, and mining.

Respondents ran businesses of every size from the micro-level – employing up to 19 staff – to large firms with more than 500 employees. It also canvassed opinions from bank loan officers and branch managers.

The China Beige Book full report will be published in mid-April, a few days before the release of official quarterly economic data.

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