Tag: #growth

  • Card usage adds THB 113 billion to the Thai economy in the past five years – the largest increase in Asia

    Card usage adds THB 113 billion to the Thai economy in the past five years – the largest increase in Asia

    Increased use of electronic payments, including credit, debit and prepaid cards, added US$3.18 billion (approximately THB 113 billion) or 0.19% GDP growth to Thailand’s economy from 2011 to 2015, the largest weighted average increase in Asia, according to research conducted by Moody’s Analytics for Visa.

    Thailand’s growth triples that of the regional average GDP increase of 0.06% with Vietnam following at 0.14% and Singapore at 0.1%. Increased electronic payment usage also created the equivalent to an average of 75,730 jobs in Thailand per year in the same period.

    Suripong Tantiyanon, Visa Country Manager, Thailand said: “These findings reinforce the many positive benefits that electronic payments bring to local economies not just in Thailand but all over the world. This research also suggests that the right public policies can create an open, competitive payment environment, and contribute to economic growth and job creation.”

    “In Thailand, Visa has partnered with financial institutions, merchants, technology companies, and government agencies such as Tourism Authority of Thailand to make electronic payment accessible to everyone – accelerating electronic acceptance, growing commerce both online and offline, facilitating tourism, and in general bringing the benefits of card payments nationwide,” added Mr. Suripong.

    The Moody’s Analytics study analyzed the impact of electronic payments on economic growth across 70 countries between 2011 and 2015. The Visa-commissioned study found that increased use of electronic payment products, including credit, debit and prepaid cards, added US$296B to GDP, while raising household consumption of goods and services by an average of 0.18 percent per year.

    In addition, Moody’s economists estimate that the equivalent to 2.6 million new jobs were created on average, annually, over the five-year period as a result of increased use of electronic payments. The 70 countries in the study make up almost 95 percent of global GDP.

    “Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation,” noted Mark Zandi, Chief Economist, Moody’s Analytics. “Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies.”

    Findings from the study were shared in the report, “The Impact of Electronic Payments on Economic Growth,” which also indicated that the electronification of payments benefited governments and contributed to a more stable and open business environment. Additionally electronic payments helped to minimize what is commonly referred to as the grey economy — economic activity that is often cash-based and goes unreported.  As a result, electronic payments provided a higher potential tax revenue base for governments, while also bringing the added benefits of lower cash handling costs, guaranteed payment to merchants and greater financial inclusion for consumers.

     

    Highlights of the global study include:

    • Growth Opportunities:

    Card Penetration: Real consumption grew at an average of 2.3 percent from 2011 to 2015, of which 0.01 percent is attributable to increased card penetration. This implies that card usage accounted for about 0.4 percent of growth in consumption. Since consumption growth is, on average, faster in emerging economies, those countries also have more to gain by increasing card usage.

    Card Usage: Countries with the largest increases in card usage experienced the biggest contributions in growth.  For example, big increases in GDP were recorded in Hungary (0.25%), the United Arab Emirates (0.23%), Chile (0.23%), Ireland (0.2%), Poland (0.19%) and Australia (0.19%). In most countries, card usage increased regardless of economic performance.

    • Contribution to Employment:

    Increased card usage added the equivalent to almost 2.6 million jobs on average, per year, across the 70 countries sampled between 2011 and 2015. Notably, the two countries with the greatest average job increases were China (427,000 jobs added) and India (336,000 jobs added), which both had large gains in employment due to the combination of fast growing labor productivity and increased card usage.

    • Emerging Markets and Developed Countries:

    Both emerging markets and developed countries experienced gains in consumption due to higher card usage. Increased card usage added 0.2 percent to consumption in emerging markets, compared with 0.14 percent in developed countries between 2011 and 2015. The corresponding figures for GDP were 0.11 percent for emerging economies and 0.08 percent for developed countries, and suggests that all markets, regardless of current card penetration rates, can benefit from increases in consumption due to increases in card usage.

    • Potential Future Growth:

    Across the 70 countries in the study, Moody’s found that every 1 percent increase in usage of electronic payments could produce, on average, an annual increase of approximately $104 billion in the consumption of goods and services. Assuming all future factors remain the same, this could result in an annual average increase of 0.04 percent to GDP attributable to card usage.

    The study highlights that expanding electronic payments alone will not necessarily increase a country’s prosperity — it requires the support of a well-developed financial system and healthy economy to have the greatest impact. The report recommends at a macro-level, to encourage the further electronification of payments, countries must promote policies that streamline regulation, create a robust financial infrastructure, and lead to greater consumption.

  • Here’s How Estee Lauder Plans To Grow In China

    Here’s How Estee Lauder Plans To Grow In China

    In Q3 2016, Estee Lauder registered an 8% growth in retail sales in China, lower than its all the time high of 20%, but still strong according to the company. The growth in China was primarily due to a 70% growth in e- and mobile commerce sales and 10% of the company’s business in China is now online. Estee Lauder now plans to diversify its brand portfolio in the region along with a geographically diversification by penetrating into more cities in China. It also plans to increase the number of freestanding stores, particularly in cities where there are no alternative distribution solutions such as departmental stores. While the Asia Pacific region (including China) accounts for less than 20% of the company’s net sales, it holds strong potential. Most of the company’s brands expect Estee Lauder registered double digit growth in China for Q3 2016. We believe that its investment in e-commerce, its diversification and increasing focus on distribution channels will drive revenues for the company from this region in future.

    Focus On E-Commerce Initiatives

    Estee Lauder reported that 70% of its growth in China for Q3 2016 came from online sales which now account for 10% of total sales in the region, slightly lower than the 12% figure for the U.S. The company plans to explore the omni channel opportunity in the region, where its freestanding stores will be connected to the online brand and be more efficient. The company also has a store in Alibaba’s Tmall which aims to bring luxury brands to Chinese consumers. Mainland China’s overall luxury market is estimated at $ 17.2 billion. According to a report by KPMG, 50% of China’s domestic luxury consumption will be generated online by 2020. Estee Lauder’s investment in e-commerce initiatives in China is aimed at tapping this market and the company is already witnessing results.

    Diversification – Portfolio and Geographic

    Estee Lauder is looking to spread its geographical reach in China by expanding into more cities through a distribution channel of free standing stores. This model will work well in smaller Chinese cities where there are no departmental stores, but consumers are keen to buy the company’s products. Currently it operates free standing stores of its M.A.C and Jo Malone brands in the region, but expects to add other brands in future. The company believes that over time its speciality channel will also develop in China. Most of its brands, with the exception of Estee Lauder, registered double digit growth in the region for Q3 2016. The company can improve the its visibility in the region by broadening its distribution channel, increasing availability in stores and fostering e-commerce initiatives.

    While Estee Lauder’s sales in China are witnessing growth currently, the company is focused on the region and plans to invest on online and distribution initiatives to generate additional sales. As the Chinese economy shifts towards consumption with an increasing demand for foreign luxury products, Estee Lauder has strong growth prospects in the region.

  • Indonesia & Vietnam leading Asian beauty industry growth

    Indonesia & Vietnam leading Asian beauty industry growth

    Indonesia and Vietnam are the fastest-growing markets in the Asian beauty industry.

    According to research from Euromonitor International, Markets of the Future: ASEAN in 2020, the two countries significantly outperform the most obvious contenders, Korea and China.

    Vietnam’s beauty and personal care market experienced healthy value growth in 2015. With the developing of the Internet network and online retailing, more consumers from rural areas can buy products more easily, and it also strongly boosts retail value sales of beauty and personal care due to changing consumer behavior. On the other hand, thanks to dynamic marketing activities by leading manufacturers and media, consumers are aware of the importance of using branded products from reliable sources after many scandals of cosmetics containing toxic ingredients.

    People are willing to spend more on all types of beauty and personal care, instead of using unbranded goods, in order to protect their health.

    Asia beauty chart

    In October 2015, the draft TPP trade pact was signed, which means Indonesia and Vietnam are set to open up to other nations by removing barriers and decreasing tariffs by up to 100 per cent. As a result, it will open significant change in beauty and personal care over the forecast period such as lower pricing and more international companies entering the two markets.

    Countires across Asia were ranked by Euromonitor by actual and forecast growth between 2008 and 2018, as the chart shows.

    The data was revealed by UBM Asia, organiser of Vietbeauty 2016 at Ho Chi Minh City in August, which will showcase products from more than 150 exhibitors from Japan, Korea, Australia, Hong Kong, Thailand, Taiwan, Mainland China, Indonesia, the Philippines, Malaysia, India, Singapore, the US and Europe.

  • Hong Kongs economic growth decelerates in Q1, risks to growth remain on downside in near term

    Hong Kongs economic growth decelerates in Q1, risks to growth remain on downside in near term

    Hong Kong registered GDP growth of 0.8% y/y in the first quarter of 2016, lower than consensus forecast. However, in quarter-on-quarter terms, the economic growth shrank 0.4%, as compared with 0.2% growth registered in the fourth quarter of 2015. The first quarter’s report suggests that the Hong Kong economy expanded at its slowest pace since 2012. The country’s trade performance is being quite impacted by the weak global demand. Hong Kong’s imports and exports both contracted sharply.

    Services exports weakened amid the deceleration of tourist arrivals and subdued spending by visitor. Hong Kong’s retail performance has been weighed on by major declines in tourist arrivals along with the relative strength of the HKD. Hong Kong’s retail sales continue to be in contraction for more than a year.

    The volatility in the global financial market has also impacted the country’s economic confidence and has been a drag on domestic demand. Private consumption expenditure grew marginally 1.1% y/y in the first quarter of 2016, as compared with the growth of 2.7% registered in the fourth quarter of 2015. Meanwhile, the property market weakened as transactions eased and prices fell.

    Hong Kong’s investment growth subtracted 2.3 percentage points from the headline GDP growth. It dropped 10.1% y/y, as compared to a contraction of 9.4% y/y in the previous quarter. Even if the relief measures stated in the 2016-2017 budget will give certain support to the economy, the risks to the economic growth continue to be tilted on the downside in the near term, noted HSBC in a research report.

    The economic growth is expected to be helped by the rapid growth in the US and stabilization in the Mainland economy in the coming quarter. The Hong Kong government has retained its growth and inflation forecast for 2016. It projects the economy to expand between 1% and 2%, whereas consumer price inflation is likely to be 2.3% this year.

    “We forecast overall GDP growth to slow to 1.5% in 2016, down from 2.4% in 2015”, added HSBC.

  • Lotte Mart Vietnam sales grow to $221m

    Lotte Mart Vietnam sales grow to $221m

    With 12 stores, hypermarket chain Lotte Mart Vietnam chalked up sales of VND5 trillion (US$221.58 million) last year – 30 per cent growth year-on-year.

    Foot traffic also grew 20 per cent, says CEO Hong Won Sik.

    Its latest outlet opened late last month, and the South Korean company is looking at more mergers and acquisitions so it can achieve its target of 60 stores by 2020, says Hong.

    He says Lotte Mart Vietnam also plans to expand to convenience stores and eCommerce.

    With more than 20 subsidiaries in Vietnam, Lotte has invested more than $2 billion, and is set to double the total investment with plans to build an urban area in the east of Ho Chi Minh City.

  • Starbucks China sales soar 18 per cent

    Starbucks China sales soar 18 per cent

    Starbucks China has recorded a massive 18 per cent increase in sales in the second quarter, fuelled by a 5 per cent increase in transactions.

    The Chinese boost was one of a string of highlights in the quarter in which Starbucks set a new sales record of US$5 billion globally, up by 6 per cent on a same-stores basis.

    The Seattle-based coffee giant served nearly 16 million more customer occasions worldwide in the three months to March 27, 12 million of those in the US where it is experiencing a resurgence.

    Earnings per share rose 18 per cent to a record 39 cents, with US and Americas comp-store sales up 7 per cent. Operating profit rose 11 per cent to a second quarter record $878 million, its operating margin up to 17.3 per cent.

    Starbucks boosted its worldwide store network by 350 to 23,921.

    CEO and chairman Howard Schultz described the Starbucks China performance as “stunning” and said the overall financials underscored the strength of the brand and the resilience of the global retail and consumer packaged goods business.

    “Loyalty, technology and innovation are continuing to fuel our digital flywheel and propel our business forward all around the world.”

  • Local retail sector seen growing 4% this year

    Local retail sector seen growing 4% this year

    Retail Group Malaysia (RGM) is projecting a 4% growth rate for the local retail sector this year, as it believes that consumers will still continue to spend in spite of the global economic uncertainty.

    RGM managing director Tan Hai Hsin said while consumers are cautious, they will continue to spend on goods and services that are important and relevant to them.

    “People are still spending on their children’s education even though it is not cheap. The MATTA Fair is also still doing well as people are still traveling,” he said in a talk in conjunction with the StarProperty.my Fair 2016 i-City edition yesterday.

    Tan said the outlook for the local retail sector this year is expected to be challenging.

    “There is no major stimulus. It’s also not an election year, this year. Right now, we’re relying on the global economy and if it’s down, it will affect us.”

    According to RGM’s Malaysia Retail Industry Report last month, the local retail industry recorded a measly year-on-year sales growth of 1.3% in the fourth quarter of last year.

    RGM said the year-end school holiday and festive season did not lift the buying spirit of Malaysian consumers, adding that the higher cost of overseas travelling due to weaker ringgit did not encourage more domestic spending.

    “The weak ringgit performance during the last quarter of 2015 had resulted in higher import costs. Higher import costs led to increased retail prices. Increased retail prices had further deteriorated the purchasing power of Malaysian consumers.

    “Despite heavy price discounts and aggressive promotions, retailers could not raise the consumers’ spending.

    “During this latest quarter, they suffered further decline in profit margin growth,” he added.

    For the full-year 2015, RGM said the Malaysian retail industry grew by a mere 1.4% as compared to the same period a year ago. The total retail sales turnover for 2015 was RM96.2bil.

    “Last year was the worst annual retail growth rate since 2010. In 2009, the retail industry growth rate was 0.8%,” RGM said.

    According to National Property Information Centre’s (Napic) 2015 Property Market Report, the retail sub-sector recorded a slight improvement in occupancy to 82.4% in 2015 from 81.8% in 2014, with a take-up rate amounting to more than 780,000 sq meters.

    The StarProperty.my Fair 2016 i-City edition, which is being held at i-City from April 22 to 24, will feature projects including i-Soho, i-Suite, Liber­ty Tower and Parisien Tower in i-City, and 8Kia Peng at Kuala Lumpur city centre.

    Besides talks and fun activities, 1,000 visitors will receive complimentary theme park tickets given daily.

  • Starbucks Corporation Growth Falters, but Remains Steady in China

    Starbucks Corporation Growth Falters, but Remains Steady in China

    Starbucks Corporation posted its second quarter financial results for the fiscal year 2016 (2QFY16), after the closing bell yesterday. The world’s leading coffee chain posted a 16.3% growth in earnings, as it continued to benefit from rapid expansion and growth.

    Earnings per share (EPS) for the second quarter came in at 39 cents, in-line with the Street’s expectations. Net income was registered at $575.1 million, higher from $494.9 million or $0.33 per share, reported last year.

    Even though sales missed analysts’ expectations, the company’s president claimed it to be a record quarter, as the reported revenues outdid all preceding non-holiday quarters. In total, the $4.99 billion sales registered a 9.4% growth, from comparable quarter last year, when the company reported $4.56 billion in sales. The company lagged behind analysts’ $5.03 billion revenue estimates, by $40 million.

    The company has aggressively worked to expand its physical footprint abroad; it recently disclosed plans to launch outposts, in Germany and Italy. Starbucks also opened its first store in South Africa, yesterday. For the quarter, the company opened a total of 350 stores globally, bringing the total to 23,921 stores worldwide.

    And yet, sales growth fell shy of the Street’s estimates. Global sales from stores established for at least a year, improved just 6% for the period ending March 27. This included 2% improvement in store traffic globally, and 4% growth in average ticket. The global comps, which reflect a 200 basis points deceleration from the last quarter, disappointed investors; the company recorded 8% growth in the metric in the previous quarter.

    Disheartened investors offloaded their holdings, as the stock took a downturn in the after-hours trade and tumbled as much as 5%, to $57.58 per share. The losses trimmed down in early market hours today; the stock is now down 2.7% to $59 apiece, as of 4:00 AM EDT.

    Sturdy Domestic Numbers

    Though global same store sales were slower than expected, region-wise growth was better than expected. “We posted 6 percent increase in comps globally, but if you go region by region, there is a story under each of those regions,” commented Starbucks’ president and chief operating officer, Kevin Johnson, in the earnings release.

    By region, the Americas and the US segment posted a 7% comp growth, which was the highest for the quarter, followed by a 3% growth in the China/Asia Pacific region. Europe, Middle East, and Africa (EMEA) region reported a 1% comps growth, as the foreign currency headwind against euros and pounds continued to affect international sales.

    Growth in the US and the Americas played out well, due to the company’s constant efforts in the region. The company targets to double food revenue, from domestic flagship revenues. In this regard, it has made efforts to get more people to sign up for its mobile app. Starbucks looks to diversify its menu and push food beyond the coffee lineup, to include salad boxes and breakfast sandwiches. This strategy has played out well, as food ascribed to more than 20% of total US sales, for the quarter.

    The company’s digital initiatives, including its mobile app, have helped Starbucks report a 9% growth in global revenues. According to the earnings call, the company’s investment in mobile initiatives, including the mobile order and pay app, has made it convenient for its users to make purchases at the store. This has resulted into significant growth, on the domestic front.

    Starbucks disclosed that mobile usage and orders have nearly doubled from the comparable quarter last year. The company has processed eight million mobile ordered and paid transactions, on a monthly basis. According to an analyst at RBC Capital Markets, a normal mobile app user spends nearly three times as much as a store going customer, which can play out nicely for the company’s future revenues.

    Doubling Down on China

    Despite a slight deceleration in global comps, the company has managed to report $5 billion in a record profit, for a non-holiday quarter. China outdid all other regions, as transactions in the country grew by 5%. This growth resulted in a remarkable 18% growth in revenues.

    “Starbucks recorded Q2 financial and operating performance – including a stunning 18% increase in revenues and a 5% increase in transactions in China – underscores the strength of the Starbucks brand and the resiliency of our global retail and CPG businesses,” stated the company’s chairman and CEO, Howard Schultz. “Loyalty, technology and innovation are continuing to fuel our digital flywheel and propel our business forward all around the world.”

    With hopes of continued growth in China, the company would add 500 stores each year in the country, in a move that could make the Asian country, one of the busiest Starbucks’ markets worldwide. A new store is set to be launched in mid-June, at the entrance of the newly opened Shanghai Disneyland. As it intends to cash-in on Disney World’s popularity, the company expects the launch to become the company’s “highest grossing retail store overnight.”

    While Starbucks continues to underscore the global nature of its rapidly expanding business, Mr. Schultz commented in the conference call: “Starbucks is only getting started” in China. Though the company didn’t divulge on profit contribution from the country, China and the Pacific Region in total reported 15% growth in profits.

    In fiscal year 2016, the coffee chain has plans to launch 1,800 new outlets globally. With nearly 700 outlets planned for the US, the company plans to open around 900 in the Asia Pacific region. For the year, consolidated revenues are expected to grow by 10%; the GAAP EPS is expected to fall anywhere in the $1.85-1.86 range. For the third quarter, EPS is expected to clock in between 47-48 cents apiece.

  • China first quarter GDP growth slowest since 2009

    China first quarter GDP growth slowest since 2009

    The pace of China’s economic growth decreased to its lowest since the global financial crisis in the January to March period, official figures show. Gross domestic product expanded 6.7% from the same period a year ago, in line with market expectations but the slowest pace of growth recorded since the first quarter of 2009.

    The world’s second largest economy grew 6.9% last year – its weakest expansion in a quarter century – falling short of Beijing’s target of 7%. But the first quarter number falls within the range of Beijing’s growth target of 6.5% to 7% for 2016.

    Other data for March released by the National Bureau of Statistics suggested that the Chinese economy was stabilising, with industrial output, retail sales and urban fixed-asset investment all beating analyst forecasts.

    Industrial production rose 6.8% from a year earlier following a 5.4% increase in January-February, while retail sales jumped 10.5%. Fixed-asset investment expanded 10.7% in the three months to March period compared to the same period a year ago, beating expectations for a 10.5% rise.

    ‘Robust growth’

    The GDP data comes two days after China’s customs agency said exports increased 11.5% from a year earlier in March, the first positive growth in overseas shipments in nine months. Imports were down a less-than-expected 7.6% following a 13.8% drop in the previous month, while the trade surplus came in at $29.9bn (£21bn; €26.3bn).

    Yuan Banknotes
    China’s central bank says it will target stability in the yuan exchange rateReuters

    Meanwhile, a Chinese deputy central bank governor said the economy had performed robustly in the first quarter but admitted that it faced several headwinds.

    “I’m pretty confident that we are going to have between 6.5% to 7% growth this year,” Yi Gang said. He reiterated that the central bank would target stability in the yuan and not allow the currency to “overshoot” its exchange rate by too much.

  • IDX Expresses Optimism in Economic Growth

    IDX Expresses Optimism in Economic Growth

    The Indonesian Stock Exchange (IDX) expressed optimism that the companies listed on the IDX would provide positive results as the national economy was predicted to grow by above 5 percent.

    “In 2015, more than 75 percent of stock issuers at the IDX booked profits. Indeed, some of them in the commodity sector recorded somewhat significant drop. Meanwhile in 2016, we believe that the economic growth will be above 5 percent,” IDX president director Tito Sulistio said in Jakarta on Wednesday, April 13, 2016. Tito added that the Bank Indonesia (BI) rate cut to 6.75 percent and the potential of capital inflow following tax amnesty policy were among the factors that would support the national economic growth.

    “Hopefully, the tax amnesty [policy] will work. Therefore, it is expected that Indonesia will see a capital inflow of about Rp 3,000 trillion (US$220.6 billion) to build infrastructures that are important for the economy. The fund could also be invested in the capital market,” Tito explained.

    He promised that he would encourage domestic companies to obtain funds for expansion by, for instance, holding IPOs. Tito added that the IDX would call on state-owned companies to conduct privatization through the IPO mechanism.

    Earlier, IDX director of corporation assessment Samsul Hidayat said that a number of regional development banks planned to hold IPO in order to increase their capital and distribute credit to wider consumers. In addition to banks, Samsul revealed that a number of state-owned construction subsidiary companies, such as PT Waskita Beton Precast, mulled to hold an IPO.

  • Lippo Group Launches Web-Based E-Procurement Service Mbiz.co.id

    Lippo Group Launches Web-Based E-Procurement Service Mbiz.co.id

    Mbiz.co.id offers an integrated and web-based e-commerce experience. It offers an electronic catalog of thousands of products in  various categories, ranging from IT products, stationary and industrial tools to groceries, provided by a number of certified vendors in Indonesia.

    “The value of sales from online retail in Indonesia is less than 1 percent of the total [bricks-and-mortar] retail sales,” said Andrew Mawikere, co-founder of Mbiz.co.id, describing the growth potential in the sector.

    Christopher Hartono, head of general services at Bank Nobu, a bank owned by the Lippo Group, said ever since the lender cooperated with Mbiz.co.id since October last year, the company was able to easily acquire any goods it needed.

    “Transactions became more transparent and convenient,” he said.

  • Maxis Q4 profit grows 7.2%

    Maxis Q4 profit grows 7.2%

    Malaysia’s Maxis has reported a 7.2% increase in net profit for the fourth quarter to 477 million ringgit ($115.8 million), on the back of solid revenue gains.

    Service revenue grew 3.2% year-on-year to 2.16 billion ringgit despite intense price-focused competition.

    For the full year, profit after tax grew 0.9% to 1.96 billion ringgit, with service revenue up 3.8% to 8.23 billion ringgit.

    Postpaid revenue was up 2.7% to 3.66 billion ringgit as a result of solid adoption of its MaxisONE plans, which helped compensate for declines in voice and SMS.

    Prepaid revenue meanwhile increased 6.2% year-on-year to 4.18 billion riggit on the back of rising data usage and market share gains in the migrant customer segment.

    During the year the company more than doubled its LTE coverage to span 71% of the population. The company accelerated its infrastructure spending to a total of 1.3 billion ringgit during 2015.

    Maxis CEO Morten Lundal commented that the company plans to push on with its transformation efforts in the year ahead.

    “The first phase of our transformation of becoming a high performing mobile company is more or less done. Now we have a strong foundation to push ahead with the second phase of our transformation of becoming the preferred choice for digital experience seekers,” he said.

  • Risk takers and growth makers look to China

    Risk takers and growth makers look to China

    With a theme of risk takers and growth makers it was inevitable that anecdotes about Australian business and China would feature heavily at The Australian Financial Review Business Summit, presented by BHP Billiton.

    China presents risks that are beyond the pale for boards of directors of most S&P ASX 200 companies and for many influential equity fund managers.

    Insurance Australia Group’s decision to pull the plug on a $1 billion investment in China said a lot about risk aversion on major company boards. The Telstra decision to not invest $1 billion in the Philippines suggests that capital will not be deployed in China even though the country wants to open up its telco market to competition.

    Risks in China that are rarely found in Australia include sudden regulatory changes, the blatant stealing of intellectual property and government decisions tied to China’s increasingly aggressive foreign policy.

    But the growth opportunities on offer in the world’s fastest-growing economy are so extraordinary that many smaller companies believe the rewards far outweigh the risks.

    That was the clear message from a range of speakers and panellists on the first day of the Financial Review Business Summit in Melbourne on Tuesday.

    Power of social media

    The most stunning anecdote came from Richard Henfrey, chief operating officer of Blackmores, the vitamins company which has stormed the Chinese market thanks to its “clean and green” image.

    Henfrey says sales of a Blackmores Vitamin E cream were running at about 3000 tubes a month when Chinese film star, Fan Bingbing, was photographed with a tube in her handbag.

    The photo was shared on social media and within weeks sales of the cream soared to 100,000 tubes a month. Today sales are running at about 500,000 tubes a month and still growing.

    Henfrey says the incident highlighted the power of social media in China. Blackmores has not had to pay the film star any money for her public endorsement of the product.

    But when asked by Chanticleer about the expansion of other Australian companies in China, Henfrey expressed surprised that others had not followed in the footsteps of Blackmores.

    He says other Australian vitamins companies had not invested in people and infrastructure inside the country.

    Blackmores has 25 people in its office in Shanghai and Henfrey is confident that staff numbers will grow to more than 100 within a year. He says Australians need to get over their fear of investing on the ground in China.

    In carving out a profitable niche in the Chinese vitamins market, Blackmores has had to navigate through tricky government regulations.

    Its success is partly due to bypassing tough government regulations in relation to medicines. Many of its vitamins are classified as food rather than medicines and this has helped to clear the way to its sales success.

    Its products are sold in about 10 per cent of the 50,000 pharmacies in China.

    Free trade zone a catalyst

    Henfrey says the establishment of the Shanghai Free Trade Zone had delivered a significant increase in sales because Blackmores could now used bonded stores to directly import products not covered by local regulations.

    This carries a strong message for other companies in Australia pondering expansion into China. The Shanghai Free Trade Zone, which was established on a pilot basis in 2013, presents growth opportunities for financial services companies.

    These opportunities were outlined in a recent paper by Jeff Schubert on behalf of the Australian Chamber of Commerce in Shanghai.

    However, the focus of discussion at the summit on Tuesday was in relation to food, tourism, education and property transactions.

    The enormous opportunities for Australian food companies in China were laid out in compelling presentation by Shaun Rein, managing director of China Market Research Group.

    Rein meticulously dissected the major drivers of consumer demand in China ranging from the impact of pollution on shopping habits to the shift in luxury purchasing habits from Louis Vuitton bags to international travel.

    He provided several embarrassing examples of international firms that had attempted to crack the Chinese market with ill-thought through advertising campaigns that showed a total misunderstanding for local consumer culture.

    Rein says CMR research showed that Polo Ralph Lauren totally missed the mark with its ads featuring blonde American models. These turned off Chinese buyers who thought the clothes would not fit.

    GAP made the same mistake by using a male model with tattoos, which are normally associated with Triad gangsters.

    He says one high-profile global manufacturer of fast moving consumer goods had made a grievous error by lowering its production standards in its Chinese factories with the inclusion of carcinogens banned in the United States.

    Pollution huge issue

    Pollution, according to Rein, is the single biggest issue transforming shopping habits in China. The air in Beijing and to a lesser extent Shanghai is often so toxic that it has forced an increasing number of people to shop online.

    Rein says that switch in consumer behaviour has not necessarily been reflected in the retail sales numbers published in China. He says traditional retail sales measures underestimate the strength of demand.

    Rein said research by CMR of people in China with a minimum of $10 million in assets showed that at least 60 per cent were making preparations to leave China, partly because of the fear that the pollution problem would get much worse.

    Pollution, says Rein, is one reason why Chinese do not trust products made in their own country. It is this distrust which is driving the demand for Australian beef, dairy and honey products.

    Raymond Yeung, a senior economist, Greater China Economics with ANZ Banking Group, told the summit that consumers now accounted for more than half of economic growth in China. He agreed with Rein that tourism presented a good opportunity for Australia.

    Australia must welcome Chinese tourists

    About 5 million Chinese visited Japan last year, about 6 million visited Korea but  only 1 million visited Australia.

    Simon Henry, the co-chief executive and founder of the top international real estate website in China, Juwai.com, says he is horrified at the low number of Chinese tourists visiting Australia.

    Juwai.com facilitated an estimated US$4.2 billion ($5.5 billion) in Chinese international real estate purchases in the 2013 calendar year, according to Henry.

    Henry’s contribution to the discussion related mainly to China’s insatiable appetite for foreign real estate. He has not found any lessening in demand despite the gradual decline in China’s economic growth.

    Demand for foreign property, according to Henry, has risen from $US5 billion in 2010 to $US52 billion in 2015. He says demand will reach $US220 billion by 2020.

    He says there are only two assets that are trusted by China’s “mum and dad” investors – gold and property. That is why the recent stock market gyrations had no impact upon demand for property.

    Yeung from ANZ provided a sobering assessment of the likely Chinese response to the possible election of Donald Trump as president of the United States.

    He says it is no surprise that China’s international priority over the past two years has been the One Belt, One Road infrastructure strategy. This policy focuses on Chinese investment in infrastructure in about 65 countries, most of which are to the west of the country.

    In fact that One Belt One Road strategy presents partnership opportunities for Australia’s major construction and engineering companies based on the experience of General Electric.

    John Rice, vice chairman of GE, told Chanticleer that GE did a deal at the end of last year in Pakistan which involved a Chinese electric power company, Chinese financing and a gas turbine from France.

    “The EPC was a Chinese company we have done business with for 20 years – Harbin – so we can bring partnerships we have established over decades in some cases to bear to win deals along the One Belt, One Road,” he said.

    “It was good for GE, good for the customer in Pakistan and good for China.”

     

  • China aims for +6.5% growth for 2016 to 2020

    China aims for +6.5% growth for 2016 to 2020

    There will be no ‘hard landing’ for the Chinese economy, despite growth forecast cuts, according to Xu Shaoshi, the Head of China’s state planning agency, commenting on the draft outline of the 13th Five-Year Plan on national economy and social development at the 12th National People’s Congress (NPC).

    This message was delivered loud and clear in the Great Hall of the People in Beijing last Saturday, despite Asia’s leading economic powerhouse missing its growth target of around 7% last year. The economy is said to have grown by 6.9% in 2015 – the lowest level in 25 years – according to the Chinese Government’s official news arm, the Xinhua News Agency.

    At the same time, Chinese Premier Li Keqiang pointed to lower growth expectations in his opening speech and more challenging times. He also announced a lowering of the economic growth target for this year to between 6.5% to 7% – a level most nations and economies around the world would obviously welcome, although this range over five years is much slower than the rates seen over the last 25-30 years.

    However, Xinhua reports that the bottom end of this new target figure is understood to represent the ‘minimum growth required’ for China to attain its stated target of doubling its 2010 GDP and per capita income level within four years by 2020.

    RISING TO NEW ECONOMIC CHALLENGE
    Li Keqiang also announced that China’s GDP is now forecast to be in excess of CY92.7 trillion ($14.2 trillion) in 2020, compared with CY67.7 trillion in 2015, according to the draft, submitted to the National People’s Congress (NPC) annual session, which opened Saturday, for review.

    The new five-year plan contains a number of important new policy measures, including the amazing prediction that China will create more than 50m new urban jobs in the next five years.

    Xinhua also points to the Chinese Premier’s promise to try and help improve the quality of life for poverty-stricken rural residents, as well as reduce the number of heavily polluted days in large cities by 25%. However, this last aim will require a cap on industrial factory output that the country has so far been slow to implement.

    Meanwhile, on the transport front, China is expected to complete its target of 30,000km of high-speed railways to link 80% of big cities nationwide. This is expected to take more pressure off the country’s airports where domestic flights are routinely delayed and many airports suffer from severe congestion.

    China-US-Tourism-Year-2016-Opening

    CHINA-US TOURISM YEAR: This year (2016) is China-US Tourism Year, with Chinese President Xi Jinping sending a message of welcome to a high-powered tourism delegation from the US last week. He said: “I hope we’ll take this opportunity to expand personnel exchange, reinforce cultural exchange and foster a more solid social basis for bilateral relations development. American tourists are welcome to China. I wish 2016 China-U.S. Tourism Year a complete success.” US President Barack Obama reciprocated with his message: “Please get ready for more and more Americans are travelling to China. I also look forward to and welcome more Chinese to the United States. I believe that the more we understand each other, the more we can work with each other.”(Photo Credit: China National Tourist Office).

    The recent announcement related to the creation of more duty free arrivals shops in China is also entirely in line with these ‘readjustments’ to the Chinese duty free regulations, as predicted last year and reported last month.

    This follows the Chinese Government’s move to reign in a bigger share of high duty free spending levels by its Chinese nationals abroad, by authorising multiple duty free arrivals shop openings at leading airports and border points.

     

  • 2016 China Fixed-Asset Investment Growth Target at Around 10.5%

    China’s economic planning agency said Saturday that it aims to realize around 10.5% growth in fixed-asset investment this year.

    Beijing had set a 15% growth target for fixed-asset investment in 2015, but actual growth came in slower at 10% as the world’s second-largest economy lost momentum.

    The National Development and Reform Commission also said it expected retail sales to increase by 11% in 2016, compared with a target of 13% in 2015. Last year, China’s retail sales rose 10.7% from a year earlier.

    China attracted $126.27 billion in foreign direct investment in 2015, up 6.4% from a year earlier, and it reported $ 118.02 billion overseas direct investment last year, up 14.7% year-over-year.