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Chinese Retail sales data for December showed a decline to 19% year-over-year, the slowest rate of growth since November 2007, as shoppers in China start to show some of the same reluctance to spend as consumers globally. Visually, the chart below illustrates a divergence between one, two and three year change in growth rates that is pronounced and distressing. By stepping back and doing a common sense gut-check however, 19% Y/Y starts looking very positive on the margin while continuing to support the investment thesis of relative strength. On a pound-for-pound basis, the impact of easing and other stimulus packages could have greater effect on retail sales in China, where consumers are less burdened by personal debt.

This is not a contrarian view. Reports in the Wall Street Journal and International Herald Tribune this morning commented on Wal-Mart and other large retail chains’ plans to continue expansion on the mainland in 2009 –clearly 19% year-over-year is also enough to motivate them to invest in China.

Our China thesis holds that growth there will be helped tremendously by increasing domestic demand, as it will in derivative economies like Taiwan where exports to the mainland account grew to almost 20% of total exports BEFORE the recent political “panda diplomacy” thaw took effect.

Andrew Barber
Director