[I-bank focus]Retail sales understate consumption strength

    China's retail sales growth decelerated in 2Q and weakened further in the summer, along with lackluster earnings reports from consumer names in autos and home electronic appliances.
  Some argued that private consumption has weakened materially in China and will worsen further due to households' investment losses (eg, the stock market correction and ongoing P2P defaults) and the crowd-out effect of high property prices.
  BofA Merrill Lynch has a different view. Its analysis shows much of retail sales weakness is due to slower sales in autos, home appliances, and construction materials and other housing-related goods.
  Since the government tightened property policies to slow both demand and supply further in 2H 2017, it is perhaps unsurprising to see housing-related consumer good sales taking a breather along with home sales after two strong years, said the research house.
  On the other hand, consumer staples and services consumption growth still remains resilient. BofAML noted that retail sales do not cover any consumer services beyond dining out, missing an important and fasting-growing component in private consumption. That is one of the key reasons the research house has cautioned against using retail sales as the only indicator on private consumption.