Economy Continues to Improve
Chinaís consumer inflation stayed below target for an eighth-straight month in August, with the Consumer Price Index (CPI) rising 2.6 percent year on year, slightly lower than July (see Chart 1). Chinaís inflation is expected to remain subdued in the coming months, and will not become a major issue for policy makers. Meanwhile, the Producer Price Index (PPI) fell 1.6 percent, the least in six months (see Chart 2). Factory-gate prices reflect an economic pickup that leaves room for officials to add stimulus if needed. Although Chinaís PPI has fallen for 18 straight months, some forecasts predict it may return to positive territory by the end of this year due to improving demand in various industries ranging from steel to shipping.
Exports gain momentum
Retail sales growth accelerated slightly to 13.4 percent in August, 0.2 percentage points higher than the 13.2-percent increase registered in July (see Chart 4). Chinaís exports gathered steam in August reflecting improving external demand and revealing more signs that the worldís second-largest economy is stabilizing. Imports steadied in August, registering a 7-percent growth rate to reach $162.1 billion (see Chart 5). Boosted by improving demand for Chinese goods in major markets, Chinaís exports rose 7.2 percent in August year on year to reach $190.6 billion (see Chart 6). Exports to ASEAN in particular jumped 30.8 percent in August, while exports to theUnited Statesrose by a comfortable 6.1 percent. Overall,Chinaregistered a wider-than-expected trade surplus of $28.5 billion for the month.
Manufacturing picks up
Chinaís official Purchasing Managersí Index (PMI) for the manufacturing sector accelerated to 51.0 in August, a 16-month high (see Chart 3). A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below 50 indicates contraction. The August sub-index for new orders climbed 1.8 percentage points from July to 52.4 while import orders were also strong, pointing to improving domestic demand. The latest readings give policy makers more room to continue much-needed structural reforms and show the economyís performance may prove slightly stronger than expected in the third quarter after slower growth in the first half of the year.
Meeting expectations
WhileChinahas officially targeted economic growth of 7.5 percent for 2013, relatively sluggish expansion in the first half - 7.5 percent in the second quarter after 7.7 percent in the first three months - has raised questions about the likelihood ofChinareaching its goal. Slower growth complicates Beijingís plans to focus on the longer-term objectives of reducing the economyís reliance on exports and government investment while boosting the role of domestic consumption. Thus far, policy makers have avoided using big fiscal stimulus measures by stepping up targeted government spending in rail expansion and public housing projects, while offering tax breaks to small businesses. Overall, officials have shown a little more confidence in the economyís performance after two months of positive economic indicators.
China's Role in Developing Africa's Retail Sector
A.T. Kearneyís Global Retail Development Index (GRDI), which ranks the top 30 developing countries for retail investment based on several macroeconomic and retail-specific variables, outlines the abundant opportunities for retailers seeking to grow and expand in fast-growing developing markets such as Africa. According to the latest GRDI, Sub-Saharan Africa continues to build momentum, withBotswanaandNamibiain the rankings and a few other countries on the cusp. The report states that by 2100, five of the 12 most populous countries in the world will be in Africa, concluding that Africa presents a dramatic retail opportunity for companies willing and able to navigate the business and political risks. While engagement in Africaís formal retail sector by Chinese brands remains limited, there are signs other Chinese companies are making a noticeable presence in supporting industries.
The further development of Africaís retail sector is limited by several challenging obstacles including: a largely underdeveloped infrastructure, which makes building a sustainable supply chain difficult; heavy economic dependence on agricultural production; and price-sensitive consumers and high inflation that have slowed the advance of modern retail. Interestingly, Chinese companies are arguably at the forefront of advancing Africaís underdeveloped infrastructure while indirectly controlling inflation by competitively introducing Chinese goods in locations ranging from suburban areas in Africaís largest cities to even the most far flung corners of the continent.
Chinese merchants are also finding niche market opportunities. The China Discount Shopping Mall inJohannesburgis a sign of greater economic integration of the Chinese migrant community, who are looking to broaden their customer base and bring their competitively-priced products closer to the people in the cityís wealthier suburbs. According to Knight Frank, a leading global property consultancy, the current trend of Chinese developers looking to invest in African malls is a natural progression from building roads, hospitals and schools throughout the continent.
However,Chinais currently facing backlash over its increased presence, especially in the small retail sector, where Chinese immigrants are currently setting up shop throughout the African continent. According to local traders in Ugandaís capital Kampala, the influx of Chinese merchants are stifling local competition.Taking advantage of favorable terms of trade and reduced costs of imports, Chinese traders routinely undercut prices charged by Ugandan traders, who are forced to import the same products at much higher prices from China. The strong presence of Chinese entrepreneurs in Ugandaís trade and investment areas makes it unlikely that the Ugandan Government will push them out of business.
Just like any other stakeholder, Chinese entrepreneurs, investors and companies will need to gain a deeper understanding of the commercial environment of each individual country in Africa in which they do business to ensure future success. Local knowledge is particularly crucial to property developers, whose projects need to be well located, designed and scaled appropriately to suit market demand. For those able to navigate their way through African property markets, there is the promise of high returns and growth potential as demand for quality retail space in Africaís developing cities should continue to rise.
