Saturday, December 03, 2011

Trends Western firms miss in China - Shaun Rein

Shaun Rein
Business analyst Shaun Rein is interview on his upcoming book The End of Cheap China by David Jackson Seeking Alpha. The kick-off: what trends are Western firms missing in China (and much more)? Shaun Rein:
The key trend for investors is China's shift from an export-oriented economy to a consumption-oriented economy. That shift has accelerated much faster than many investors realize in the past three years as labor and real estate costs have soared. Wages are increasing 20% a year in the main manufacturing hubs and office space in Shanghai is more expensive than in many Western capitals. To deal with rising costs, firms like Nike (NKE) have had to move manufacturing to lower-cost places like Vietnam, while at the same time China has become the market for Nike. They are now selling over $2 billion a year into the country and have 30% margins, the fattest they have anywhere in the world. China has become the market to sell into rather than produce in. 
Are there accompanying changes in Chinese society that investors should be watching? 
Many investors underestimate the increasing purchasing power of Chinese women. They hear stories about female infanticide and have an outdated image of Chinese women as living downtrodden lives. That stereotype just is not true anymore. In the 1950s, Chinese women accounted for 20% of household income. They now have reached parity, and are the segment driving retail sales and big ticket purchases, like homes and autos. My book includes a whole chapter that delves into what Chinese women want, their hopes and aspirations. For instance, I found one of Chinese mothers' biggest concerns in life is adequate education for their children. They feel China's education system is terrible, relying too much on test taking and rote memory, so they spend serious money on training and enrichment programs. One mother in Beijing told me she spent $40,000 USD a year on after-school training for her 5-year-old daughter. Investors should be looking at companies like New Oriental Education & Technology Group (EDU) and Xueda Education Group (XUE) to capture this trend.
Read the whole interview here and here

More on Shaun Rein and China's economy at Storify.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch
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