ea with strength in another. In this instance, many had been banking on a resurgence in China to offset growing sluggishness in Western markets that are still being tormented by inflation and high interest rates.  Now, those retailers are having to modify their expectations. Executives are still making positive noises but there is some angst underneath the bravado. Sales up and inflation non-existent On the surface at least, things are by no means dire. China’s National Bureau of Statistics (NBS) states that retail sales were up 6.8 per cent, year-on-year, in the first nine months of 2023, or 7.0 per cent if motor vehicles are excluded. In September, sales were up 5.5 per cent year-on-year, and +=5.9 per cent excluding automobiles. So the latest data hasn’t altered the top-line growth story too much, other than a small drift downward. And if you believe the government inflation data – the September inflation rate was zero (yes, zero, that’s not a typo) – then 5-10 per cent retail sales growth is very solid. Services outpacing retail Reflecting a shift in spending patterns from merchandise to services, sales of goods in September were up 4.6 per cent, while catering gained 13.8 per cent. This, too, is roughly in line with the trend for the first nine months of the year. So pronounced is the shift from goods to services spending in China that in August the NBS launched a new data series that breaks out services spending separately. Services may now be accounting for as much as 40 per cent of all consumer spending in China, still well below what it is in the West but growing at a pace that would be concerning to retailers, since it crowds out spending on retail goods.  Keep in mind also that demographics are swinging slowly against consumer spending on merchandise. Specifically, the country’s population is now ageing and declining in number. The UN estimates that, this year, the population will fall by 215,000. It isn’t a crisis yet but at projected fertility and death rates, it gets you to some very big numbers even by the end of the decade. The new NBS services series quantifies spending on items that have experienced rapid growth, such as leisure activities, healthcare, business services, education, transport, accommodation and dining out. Big-ticket home goods are lagging Within the goods segment of retail, food and beverage, tobacco and alcohol, and apparel and accessories have all remained strong throughout the year, while big-ticket items in the home – furniture, appliances and digital products categories – have lagged noticeably. Home improvement (‘construction and decoration materials’) was down almost 8 per cent. Worse could be in-store for these home-related categories, given that home prices have been falling and home sales slowing, both of which are harbingers of weak sales in furniture and appliances.  International retailers remain confident Executives of international retailers with big stakes in the China market have continued to make positive noises despite some obvious underlying concerns. LVMH reported year-on-year sales growth of 32 per cent in non-Japan Asia – a geography of which China makes the biggest part – for the first nine months of 2023, including 11 per cent for the third quarter. This represented a slowdown in growth from 34 per cent in the second quarter but it should be remembered that the base year was choppy and the second quarter had anniversaried the extended lockdown in Shanghai, the country’s biggest city. Consequently, the third quarter might represent something of a ‘normalisation’ in activity.  Other major international retailers have been reporting good things. Nike, for example, said its currency-adjusted sales in Greater China grew by 12 per cent, year-over-year, in the quarter ended 31 August. Footwear and apparel were both strong. CEO John Donahoe soothed fretting investors on the company’s earnings conference call, telling them: “Sport is back in China, you can just feel it. That gives us great confidence about the future and the Chinese consumer in our segment regardless of the macroeconomic outlook there.” Also in the mid-market, Fast Retailing, parent of Uniqlo, which has 930 stores in China, has been very upbeat about business there, saying it has entered “a new growth phase”. Fast Retailing reported material improvements in Greater China operating and financial results for the fiscal year ending 31 August: Revenue increased 15.2 per cent to 620.2 billion yen and operating profit rose by 25.0 per cent to 104.3 billion yen.  The economy: still growing, but creakily. The Chinese economy is still growing at a good pace. In the July-September quarter, gross domestic product (GDP) grew 4.9 per cent on a year-on-year basis, roughly in line with the first half of the year and indicating no significant slowdown. However, China hasn’t yet shaken off a whole slew of problems, any one of which could hold the economy hostage in the short term: a property crisis, high youth unemployment, weak business confidence, heavy household and government debt loads, a slowdown in growth in China’s export markets, and ongoing geopolitical strife with the US that affects trade and investment. (On the last of these items, in September it was reported that China’s government has banned the use of iphones by government employees, heightening fears that Apple’s business in China is under a darkening cloud.) The government has not sat on its hands and has set out to stimulate the economy by relaxing lending rules for home loans and lowering mortgage rates and downpayment amounts for first-home buyers. Whether these measures will keep the Chinese economy’s head above water is anyone’s guess: the only thing that seems certain is that we are in for a prolonged period of uncertainty.