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Chinese consumers are paying less at the cash register, AND they are still shopping …

CPI data from China released today came in at +2.4%. This was a positive surprise for The New Reality where Chinese bulls are getting paid.

Lower commodity costs now provide the Central Bank the much needed room to make further rate cuts. The rate of food cost inflation in particular has come down dramatically from the stratospheric levels at the beginning of the year , declining from 23% in February to under 6% in November –the lowest level since January of 2007, when everyone loved China.

Interestingly, Chinese retail sales were +21% y/y in November, only 1% less than October, indicating that the pace of China’s growing consumer culture is continuing to show resilience in the face of the global meltdown.

We think that domestic consumption will provide continued strength to the Chinese economy on a relative basis (unlike their former “BRIC” cohorts India and Russia). With more money to put to work, more room to cut rates and more new consumers coming into the market they are definitely sitting at the head of the table.

We are long the Chinese equity market via the FXI ETF.

Andrew Barber