Softer Domestic Demand Conditions In H211, But Still A Regional Outperformer

We maintain our view of a slowdown in domestic demand in China over the latter half of 2011. Inflationary pressures are proving stickier than we previously expected, which we think will push consumers to keep a tighter rein on spending over the coming quarters. In addition, our Country Risk team is expecting price declines in the Chinese property market over the medium term, which would provide another negative impetus to consumer spending. Despite our relatively subdued outlook for China's near-term domestic demand, we stress that the country's domestic demand prospects still compare very favourably to its regional peers, underlining the strong rewards on offer.

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