China's retail sales in July rose 9.8 per cent year-on-year, the fastest pace in six months, the National Bureau of Statistics said Thursday.

In June retail sales rose 8.3 per cent from a year earlier, rebounding from a 4.3 per cent growth in May, the slowest in five years.

The growth was 7.7 per cent in April, 9.3 per cent in March and 9.2 per cent for the first two months.

In July, retail sales stood at 356.2 billion yuan (US$42.9 billion), the bureau said in a statement.

Year-on-year retail sales in urban areas rose 11.6 per cent to 233.8 billion yuan (US$28.2 billion), while the figure in rural areas increased by 6.5 per cent to 122.4 billion yuan (US$14.7 billion).

The strong performance of retail sales suggests that consumer purchasing power, which was held back by the SARS (severe acute respiratory syndrome) outbreak, rebounded in July, said Zhang Liqun, a senior researcher with the State Council's Development Research Centre.

In July automobile sales jumped 85.3 per cent from a year earlier while telecommunications equipment sales rose 57.1 per cent.

Sales of furniture were up 31.3 per cent, while materials used in construction and decoration jumped more than 72.3 per cent.

The heatwave that hit southern China this summer spurred buying of fans and air conditioners, also helping overall sales, the bureau said.

Qi Jingmei, a senior economist with the State Information Centre, predicted the country's retail sales will increase by between 8.3 and 8.5 per cent in 2003, down from the 10.2 per cent growth predicted earlier.

"The SARS outbreak had a considerable impact on people's consumption capability, especially on farmers' consumption,'' Qi said.

In the second quarter, when the SARS epidemic was the most severe, farmers' per capita income dropped by 35 yuan (US$4.2) because many farmers working in urban areas got back to their rural homes where they had no income.

This would affect farmers' income growth by 1 percentage point for the whole year, said Yao Jingyuan, chief economist with the National Bureau of Statistics. "Since mid-April the country's consumer goods market witnessed big fluctuations,'' he said.

Retail sales declined quickly and dipped to the lowest level in May. Retail sales in the catering industry dropped a year-on-year 15.5 per cent in May. But in June, when the SARS outbreak was brought under control, consumers resumed purchasing.

According to a recent survey by the Beijing Municipal Statistics Bureau, the city's service industry, which was deeply affected by SARS, began showing signs of recovery in June.

The aggregate business volume of those surveyed, although dropping 19.7 per cent year-on-year after climbing to 1.1 billion yuan (US$132 million) in June, was still an improvement over May's year-on-year drop of 43.2 per cent.

The survey indicates that barber shops, beauty salons, bath houses and entertainment centres all experienced quick recovery.

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