How vigorously China - and by extension Hong Kong - can bounce back from the economic downturn depends largely on the health of consumer demand on the mainland.
Unfortunately, the prognosis is not good.
So far Chinese consumer demand has appeared to hold up relatively well. As export demand has stalled and property investment slumped, retail sales - widely used as a proxy for overall consumer demand on the mainland - have continued to expand, growing at a 19 per cent year-on-year rate in December (see the first chart below).
On the surface that appears to be a retreat from the heady 23 per cent growth rates enjoyed last summer before the economic crunch began to bite.
But when you consider that consumer price inflation dropped 4 percentage points over the same period, it looks as if mainland consumers have continued to spend at an impressive clip in real terms, despite the twin blows of falling asset prices and mounting job losses.
Following yesterday's release of inflation figures for January, however, economists are beginning to doubt whether that enthusiasm can be sustained.
