Retail sales on the mainland are predicted to continue the strong performance in the second half of this year, according to the latest MasterIndex of Retail released by MasterCard Worldwide.

"Stronger retail sales across the Chinese mainland are projected for the second half due to continuing rising incomes of both urban and rural residents as well as strong employment growth," said Yuwa Hedrick-Wong, economic advisor of MasterCard Worldwide.

According to the recent report, China's retail sales volume is expected to reach about 4.5 trillion yuan in the second half, with a year-on-year increase of 12 percent.

China also witnessed a strong retail sales performance in the first half of this year, with overall retail sales for the January-June period totaling 4.2 trillion yuan, up 15.4 percent from last year, according to the National Bureau of Statistics (NBS).

Specifically, urban retail sales for the first half totaled 2.9 trillion yuan while retail sales at the county level and below rose 14.3 percent to 1.4 trillion yuan in the period from a year ago, the NBS has said.

Wong also attributed the projected strong growth to the rising growth of the Chinese economy that bolsters consumer confidence and a booming catering business, as well as brisk auto and housing sales.

The government has raised salaries for civil servants "by a large margin" during the last four years and increased subsidies and minimum living allowances for the poor.

"This (increased salaries and subsidies) will continue to help boost the consumption market," Wong told China Daily.

The rising grain and food prices and a continuing minimum grain purchase price scheme would also help increase rural residents' incomes, which, in return, will push forward retail market development in the county-level areas and below, Wong said.

"Retail sales are typically affected by two sets of factors, one seasonal such as the big holidays, and the other structural, such as changes in real income and employment and consumer optimism. It's no different in the second half of this year," said Wong.

China is witnessing inflationary pressure in the consumption market but Wong said it will not affect the overall retail market.

"Inflation in the short term may actually increase sales value. Given unchanged budget, consumers typically spend the same amount and buy less in terms of volume. In most cases, however, consumers end up spending more in order to buy the same amount as previously. As a result, in the very short term, retail sales would likely go up in nominal terms."

Wong said the only factor in China that is different from the regional perspective in Asia is the rapid rise in inflationary pressure, which will entail further government policies to curb the rise.

"Government policies may include a further interest rate increase. So over the medium term (next 12 to 24 months), even if the real economy stays strong, retails sales may slow somewhat in growth," Wong said.

(China Daily September 7, 2007)