By Keith Fitz-Gerald
Money Morning/The Money Map Report
Despite what you might be hearing about a global recession, consumer capitalism is alive and well in China.
And it's still fueling growth.
Take a stroll through Beijing's trendy Wangfujing area, a quick walk south of Tiananmen Square or the six-story Shin Kong Place in Beijing's Dawanglu area, and you'll find more than 100 top international designer brands on sale, including Prada, Gucci, , Dolce & Gabbana, and others. While you're on the prowl, don't forget Xidan Market, which the locals prefer. It's also bursting at the seams from countless stores, fashionable-clothing shops and, of course, the ubiquitous and ever-present Starbucks (SBUX).
In contrast to other global markets, like the Ginza, Beverly Hills' Rodeo Drive or London's Oxford Street, for example, where a heavy silence hangs over the once-bustling shopping areas, the sounds of commerce are everywhere.
Cash registers clink and clank, and credit-card machines whiz, but not where most people would predict.
With the deepening of the global recession, throngs of Chinese consumers and expats no longer willingly stand for 40 minutes to get into stores selling Gucci, Vuitton and other top-end items. Instead, they're pushing their way into places with names like Uniqlo (pronounced "uni-clo"), Lavinia, and Blur - all of which were once regarded as the illegitimate children of yuppie-dom, because of their bargain-based orientation.
Lately, though, they're the unsung heroes. That might strike you as strange because Uniqlo hails from Japan, while Lavinia comes from Italy. Only Blur is a native Chinese operation. But all three specialize in providing high quality at super reasonable prices.
It's always fun for me to shop at Uniqlo, in particular, since my family and I shop there each year when we're home in Kyoto. Just to be unique, I often pick up something for my wife and kids from China's Uniqlo stores. The service is top notch and I can't help but chuckle over the fact that I can buy several shirts for less than I would ordinarily pay for just one in Europe, or here in the United States.
Locals - like my friends Hao Jun and Hairong Zhao - tell me the situation is much the same among China's yuppies, or "Chuppies," as they're now known.
"We're still buying what we like, if we can afford it," Hairong says.
And judging from the latest figures, which said China's domestic consumption advanced at a mind-boggling 28% in 2008, there's lots to like.
Depending on which studies you believe, Chuppies account for slightly more than 7% of the population. That doesn't sound like much, but that puts the number of Chuppies at more than 100 million - every one of them with a middle class income, appetite and purchasing power that can be expected to grow.
Granted, China's overall consumption is slowing and 2009's domestic growth could slow to the mid-teens, but that's still more than double what we're likely to experience here in the United States, or in Europe.
For some, this slowdown is the end game. But others understand that this is just the beginning. I'm in that latter camp, having spent considerable time in the region over the past two decades - more than enough to watch several boom-and-bust cycles in both Japan, and China, and to understand how they work and what to look for.
"While it's clear that Chuppies can't replace a drop in Western consumerism [all] on their own," said my good friend and noted China expert, Robert Hsu, "they're still spending in many sectors - like education, for example. And the government is still spending on the infrastructure that enables financial growth."
That's a mantra I've spent years encouraging investors to take to heart, if for no other reason than there will be growth "because" of Chinese policy that's not just limited to the growth taking place "in" China. And that, in turn, leads to some appealing investment opportunities - particularly now that the markets have beaten the share prices of so many superb companies down so significantly.
Assuming this strategy is correct, history suggests there are two potential ways to profit. Clearly the results won't be immediate, nor will they be straight up - like the returns we saw a few years ago, during China's earlier period of frenetic growth.
Nevertheless, the payoffs to come could well be the best we see for a generation or more.
First, savvy investors in sync with Chinese buying patterns can target companies that sell to Chuppies, like New Oriental Education & Technology Group Inc. (EDU), the Beijing-based provider of private-educational services, and YUM! Brands Inc. (YUM), the well-run global operator of the KFC, Pizza Hut and Taco Bell fast-foot-restaurant chains. Both companies are enjoying superb year-over-year sales growth in China - even in the face of worsening global economic conditions. [For Money Morning's recent report on Yum Brands' successes in China, please click here. The report is free of charge.]
Second, investors who believe that infrastructure is the way to go can easily choose from dozens of companies engaged in China's great economic build-out, including choices related to rail, air and construction.
Third, still another choice is to invest directly in the Chinese Yuan (Renminbi). Not only is China's currency continuing to appreciate and gather strength; it's likely to emerge as one of the world's most powerful currencies, once both the dollar and euro are eviscerated.
Undoubtedly, a good number of people reading this will take issue with my assessment. And I don't blame them. On the surface, it appears that China may be all washed up.
However, at a time when our own economy is sliding into a deep, dark hole, China's relentless march forward suggests that this Asian country not only has a more promising future; it will emerge as an important economic and political force to be reckoned with.
Not to mention a powerful investment opportunity.
[Editor's Note: With the U.S. financial markets in tatters from the global credit crisis, Money Morning and its affiliated monthly newsletter, The Money Map Report, have trained their profit-seeking sights on markets outside U.S. borders. Of all those markets, one dwarfs all the others put together. And that's China. As his intriguing and insightful columns on China demonstrate, Money Morning Investment Director Keith Fitz-Gerald has a network of contacts in China, Japan and other key markets that gives his readers advantages that other investors never enjoy. That makes Money Morning a "must read" each day. Our monthly newsletter, The Money Map Report, is even better. To get you to give it a try, we're willing to give you a free copy of investing icon Jim Rogers' best-seller, "A Bull in China" for subscribing. The book is filled with top-level investing intelligence on the top companies - and best stocks - in China. Check out our new report, which shows you how to get a free copy of this book. Just click here.]
News and Related Story Links:
- CityWeekend.com (Beijing):
Shin Kong Place.
- International Herald Tribune:
New Rules for Expats in China.
- U.S. News and World Report:
- Money Morning Market Analysis:
- Money Morning News Analysis:
Massive China Stimulus is Viewed as an Attempt to Help the West.
- Money Morning Hot Stocks:
Hot Stocks: Fast Food Restaurateur Yum! Brands Making China its Main Course
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.