edwardsglobal.com Blog

Many things have changed dramatically over the past 28 years since I first went to China. Some things about China will never change. This report highlights some of what China is today that is important for Westerners to know whether they are closely involved with China or just live in a world that has China as a neighbor, partner or competitor.

Retail – Retail – Retail

The growth of high-end shopping malls with high-end western brands and emerging high-end Chinese brands continues. There is little evidence of a recession in 2009 when it comes to shopping. The 2010 A. T. Kearney GRDI country attractiveness chart at the following link clearly shows China in a position for retail growth.

http://www.atkearney.com/index.php/Publications/global-retail-development-index.html

The Chinese Consumer

China is, today, all about the consumer. Various estimates place the middle class population, based on purchase power parity, between 250,000,00 and 300,000,000, primarily located in the eastern 1/3 of the country. This is largely a young, upwardly mobile, aspirational two-income family demographic with one or maybe two children and with discretionary income.

Everything in China today that related to business is consumer focused. And there is, again, little sign of a recession in the major eastern regions of this country. China is what we consider an ‘engine’ country: a country that has a rapidly growing middle class that is focused on buying and which to a great extent insulates it from global financial ups and downs. Brazil, China and India are examples of ‘engine’ countries.

Labor Costs & Strikes

The media has recently been full of mention of strikes at the Honda and Toyota factories in Southern China. Some western media have picked up on the shortfall of low-end labor for the factories in Guangdong, Jiangxi and Fujian provinces.

Southern China factories for decades have been able to count on rural population migrating from the west of China to find jobs in the east because there were no real jobs in their home provinces. Today you see ads in the papers seeking such workers and offering bonuses to come to the factory regions. The once rural migrant worked now finds good job opportunities at home.

So, relatively low wages will soon not be a reason for basing manufacturing in China. Low wage operations are already moving to Viet Nam.

10 Misconceptions About Doing Business In China

Finally, let me share with the reader one of the most important articles on doing business in China in many years.

Jeff Jiang, China Strategies Consultant, Lurie Besikof Lapidus & Company, in Minneapolis has written THE article on doing business in China myths, which can be downloaded at the following link:

http://www.lblco.com/documents/LE_China.pdf

The Bottom Line: Things are not always the way they are portrayed in the media when it comes to China!!

2010 is the year of the Tiger in Asia.

It also may be Asia’s decade. This is true in many ways.

Asia is leading the world out of recession, as the figures below show. A ‘1’ ranking is best. Countries with strong GDP growth will have businesses growing and adding jobs.

A recent article in the ‘Economist’ reviews a Manpower study that looks at which countries will seek strong job growth in 2010. China, India and Singapore will see strong 2010 job growth. Europe will not.

http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=15677079

‘Economist Intelligence Unit’ research indicates that in 2009, Asia had:

• 34% of the total global stock market capitalization
• 34% of the world’s economy (using Purchase Power Parity)
• 60% of the world’s population
• 33% of the world’s retail sales
• 35% of the world’s car sales
• 43% of the world’s mobile phone sales
• 40% of new global investment

This trend is expected to continue and by 2020 Asia may produce 50% of the Western multinationals’ sales and profits.

A recent Business Week article suggested that it is time to focus more on the Indian middle class than on the Chinese middle class consumer. India has about 300 million in the middle class today versus 200-300 million middle class Chinese, depending on your information source. Business Week postures that India’s middle class will be better consumers than their Chinese counterparts.

http://www.businessweek.com/magazine/content/10_05/b4165084462859.htm

The Beijing Municipal Development and Reform Commission announced in September 2009 that the gross domestic product (GDP) per capita in Beijing in 2008 was $9,075 and is likely to reach $10,000 by the end of 2009. (Stratfor)

AdAgeChina recently stated that over the next 15 years, China’s so-called gray market of consumers aged 50 plus will become the most potent spending demographic on the planet. By 2025, there will be more than 500 million “mature” Chinese consumers, or almost 36% of the Chinese population. Today, the country has 300 million Chinese over age 50, making up 21% of the population.

There would seem to be sufficient middle class for foreign companies to target in both countries currently, while many fully developed countries have consumers who are reluctant to spend.

The International Energy Agency* projects that the global demand for oil will rise 23% from 85 million barrels a day in 2008 to about 106 million barrels a day in 2030.

Oil demand by developing countries is projected to rise 62% to about 56 million barrels a day by 2030.

In the developed world, however, oil demand is expected to decline – yes, decline – by 10% to about 40 million barrels a day.

This shift from the majority of today’s main oil need  going from developed countries to energy hungary developing countries is likely to have profound implications for the world trade balance.

And may result in potentially game changing political alliances as the developed world concentrates on other energy sources while the developing world seeks more and more oil.

Where will this oil come from? Will the same sources be providing energy as today?

Of course, this is very hard to predict. Recent projections that oil supply is about to peak globally are being proven wrong by immense deep water finds off the northwest coast of Brazil and in the supposedly fully explored US Gulf of Mexico. And much of the western coast of Africa remains unexplored based on current geophysical exploration technology.

And then there is the US gas component. Recent major discoveries in long explored areas of the US may result in a long term electric power generation solution through clean burning indigenous gas without expensive liquid imports that were thought necessary just a couple years ago. Perhaps the US’ energy ‘crisis’ once again will be solved by local, new sources of oil and gas – albeit at a price.

Meanwhile governments have gotten into the energy exploration business. The Chinese character for crisis also means opportunity. Government controlled Chinese companies are tying up major oil fields and exploration areas directly with other governments, essentially eliminating private oil and gas exploration companies.

And what does the projected 62% increase in oil demand for the developing world mean for all of us on this small blue planet???

* As reported in the November 10, 2009 edition of  ’The Economist’ magazine.

The February 14, 2009 edition of ‘The Economist’ magazine had a special section on the world’s middle class.

If one defines the Middle Class as people with one third of their income left for discretionary spending after providing for basic food and shelter, new research -defined in detail in ‘The Economist’ – indicates that as of 2005 there were 2.6 billion people in the Middle Class – about 55% of the world’s population.

This has immense implications for companies selling their products and services on a global basis. And for the future development of the world, for that matter.

As people emerge into the Middle Class, they do not merely create a new market. They think and behave differently. They are more open-minded.

This aspirational, new to Middle Class population is more likely to invest in new products, new technologies and new businesses than the already rich, who tend to try to defend their existing assets.

This new Middle Class are now concerned about quality, brand and convenience for their discretionary spending. They often show they have ‘made it’ by frequenting western branded businesses, which are seen to have better quality and be more convenient than local brands.

And the newly Middle Class like to show off by being seen at western brands. How else can one explain almost 30 Starbuck’s in the Greater Shanghai Area with western prices and often busier than in the U.S.?

This changes countries and offer immense future opportunity for western brands on a global basis.