Business drives China retail boom

China's factories are working overtime

Retail sales in China leapt almost 10% in the 12 months to August, powered by demand for cars, phones and building materials.

The 9.8% annual growth suggest a strong comeback from the damage done to spending in the first few months of the year, when the Sars virus swept across East Asia.

In May the growth was just 4.3%, good by some countries' standards but poor in an economy growing at close to 8% a year.

But the news is worrying some economists, who say the retail boom is being driven by an investment boom rather than by consumers' keenness to spend.

Banks are loaning massive amounts to companies, many of them state-owned, fuelling a 32.7% rise in fixed asset investment in the year to August, according to official figures.

Despite central bank measures to calm things, including a requirement for higher reserves - and therefore fewer loans - that boom could easily overheat, triggering overcapacity and thus further undermining parts of the economy.

That could result in a sharp increase in unemployment, the fear of which is what may be driving Chinese consumers to keep saving rather than spending.

And the gulf in spending patterns between the cities and the countryside remains wide too.

Retail sales were up 11.8% in urban areas, but only 6.5% in rural ones, where earnings can on average be as little as 15% the mean city wage.