China's retail sales reported a stronger-than-expected growth in May, rising 14.2 percent year-on-year to 617.6 billion yuan (US$77.2 billion).

Retail sales in cities grew by 15 percent in the month, with the figure for counties and rural areas rising by 12.6 percent, the National Bureau of Statistics (NBS) said yesterday.

"The 14.2 percent growth rate is higher than expected, though we had anticipated retail sales would remain robust with improving incomes for both urban and rural households," said Chen Jijun, an analyst with CITIC Securities in Beijing.

Retail sales in China grew by 13.6 percent in April compared to a year ago and 13.5 percent in March. It was generally expected the figure for May would be at a similar level.

Chen said the fluctuation was partly caused by a jump in retail sales during the week-long May Day holiday, which rose 16 percent from a year ago to 278 billion yuan (US$37.6 billion).

Consumption of high-end commodities is also increasing.

Spending on auto products increased by 29.4 percent last month year-on-year, while for cosmetics and furniture the figure was up 20.1 percent and 40.1 percent respectively.

Catering and the accommodation sector also reported a 17 percent growth in May.

"Generally speaking, consumption is on a solid rising track, especially in rural areas, where household incomes have picked up considerably over the past two years and have reached new levels," said Chen.

The boom of rural consumption also boosts business in cities.

According to the NBS statistics, disposable income per capita in towns and cities climbed 10.8 percent in the first quarter year-on-year, 2.2 percentage points higher than the growth rate for the same period a year ago.

Rural incomes surged 11.5 percent during the period, backed by higher incomes from rural product sales and higher salaries.

China has pledged to further ease the financial burden on low-income rural citizens with more government spending on health care, education and welfare in the latest five-year economic plan.

Stronger consumption will reduce the economy's reliance on investment growth, analysts said.

That is a comfort for the monetary authorities, which have shown greater concern about excessive investment and lending in the first quarter of this year.

Given that there are low inflationary pressures and strong consumption, it is unlikely there will be an interest rate increase in the near term, said CITIC Securities' Chen.

(China Daily June 14, 2006)