GOLDMAN SACHS: China's Golden Week Signals A Soft Landing

china street shopping

Photo: flickr: pa*kr

China is coming back from its Golden Week national holiday, which went from October 1 – 7. Real estate sales were slow.¬†According to China’s Ministry of Finance, retail sales grew 17.5% year-over-year.

Goldman Sachs analysts acknowledge that growth is slowing, but they argue that this is more likely signaling a soft landing rather than the feared hard landing.

The government data suggests consumption growth has begun to moderate after an exceptionally robust 1H. The Golden Week sales growth of 17.5% is 2.2pt lower than the 19.7% growth delivered during the 3-day labour Day long weekend and 19% growth during the Chinese New Year. Nevertheless, we believe the pace of moderation is healthy, and is considerably more measured vs. the 2008-09 slowdown.

Excluding the peak-trough growth years of 2007-09, China’s consumption growth has tracked close to 15% since 2005. We believe the current growth rate could be normalizing down towards the mid-teens rate. We continue to forecast approximately 5 pt slowdown in organic retail growth rate (i.e. the retailers’ SSS) over the next 12m as our base case, rather than the 10 pt slowdown experienced in 2008/09.

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