By  on January 26, 2009

HARBIN, China — The downtown shopping area here, full of international stores set amid a well-preserved model of early 20th century stylish architecture, is packed with giddy tourists and sightseers ahead of the Chinese New Year festival. They’re window-shopping and posing for photos in front of high-end shops in famous Art Nouveau buildings.

But the cash registers aren’t ringing.

The global economic crisis has hit hard, even here, in China’s largest northeastern city, a former cosmopolitan outpost on the Trans-Siberian Railway. Chinese consumers are holding on to their cash rather than spending optimistically the way they did only a year ago. Home of the world’s largest ice sculpture festival, Harbin is China’s main winter tourism draw.

Though tourist agencies predict the largest year yet for visitors, sales are down in what is the biggest shopping period of the year. From Sephora to Armani Exchange to Nike, shops are bustling with browsers, but sales are light. Everywhere in the city’s shopping district there’s evidence China’s consumer boom is slowing.

“Last year, people would buy single items for 1,000 yuan ($146). Now we have to discount the same items to 300 yuan before they will buy it,” said Lingyi Gao, a clerk in a sporting goods chain store selling Nike and other brand products. “We’re selling less, of course, because of the economic crisis.”

Across the way at another sporting-goods retailer, clerk Hongqui Xu said last year he was selling about 30 jackets and sweatshirts every day during the Lunar New Year shopping period. This year, he’s selling about 10.

“People don’t want to spend as much money,” said Xu. “I hope it will get better.”

For most retailers in China, this week is the year’s most important shopping season, akin to the post-Thanksgiving rush of the U.S. but packed into fewer days. But this year in Harbin, as in other major cities across China, business is down, and retailers are struggling and cutting prices by extreme measures to draw in shoppers and make sales. In Beijing and Shanghai, stores say foot traffic hasn’t slowed much, but sales are down significantly from last year and certain to damage business as 2009 begins.

The government has yet to release new statistics on retail sales, but anecdotal evidence and analysts say there’s little doubt the global financial crisis has taken a bite out of China’s budding retail market. Data released Jan. 21 showed that economic growth in the fourth quarter of last year slowed to 6.8 percent — a far cry from the 13 percent growth rate of 2007. Overall, the Chinese economy grew by 9 percent last year, the slowest rate in a decade.

This slump comes at a time when China was committed to encouraging domestic demand and consumption to help counter its trade surplus and decrease dependence on an export-heavy economy.

Nationwide, retail sales grew overall by 28 percent in the first half of 2008, but that growth slowed to 10 percent by the second half of the year, according to official statistics. Luxury goods, furniture stores, chain clothing stores and electronics retailers have taken the hardest hits, analysts said. As stores turn to deep discounts to draw customers, analysts say the key to restoring faster growth is, as elsewhere in the world, boosting consumer confidence.

“People’s incomes have not decreased, so the purchasing power is still there,” said Guojian Gu, a retail analyst with the Shanghai College of Commerce. “The problem is consumer confidence. But I think as the government reveals more stimulus plans, at least consumption won’t decrease further.”

China’s exports have slowed dramatically in recent months, backsliding in December at the fastest rate in 10 years. Exports decreased by 2.8 percent in December from the same month a year earlier, indicating a sharp fall in global demand for Chinese-made goods. The trade surplus has also declined and experts are predicting a significantly lower growth rate (5 to 6 percent) this year. Rising unemployment and deflation have, within a matter of months, replaced record inflation as the country’s number-one economic concern.

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