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Chinese Consumers: Acting Globally and Thinking Locally

by: Andrew Corn posted on: April 23, 2007 | about stocks: CHN / FXI / GCH / JFC / PGJ

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Given the interesting market activity in China over the past week, we thought it would be of interest to our readers to devote this weekly review to commentary on the Chinese economy and our take on it. Many believe that the 4% drop in the Shanghai Composite index on Thursday helped spark a selloff here in the U.S.

The near 4% rise in the China stock market yesterday may have helped drive buying in the U.S., so we can see that the link between our stock market and the Chinese market appears to be gaining importance.

After reading excerpts from a report from 1st Quarter 2007 edition of the China Quarterly Survey by BIGresearch, the numbers tell an interesting story. Chinese consumers are impacting the growth of their own economy. In other words, it is not all exports.

Exports are still the main story as Keith Bradsher reported 4/18 in the NY Times:

To be sure, China’s exports to the United States are huge and growing, as is the trade imbalance, which is significantly larger than the European Union’s deficit with China.

China is still nearly 25 times as dependent on exports to the United States as a percentage of its total economic output as the United States is on exports to China.

Given that the Chinese economy is less than a quarter the size of the American economy, it is all the more striking that Chinese exports to the United States are worth more than six times American exports to China.

China sent more than 31 percent of its exports to the United States in 2000, but that dropped below 24 percent in November and reached 22.7 percent in February, according to a Goldman Sachs tabulation that included Chinese goods trans-shipped through Hong Kong.

Exports to the rest of Asia have leveled off, while those to European Union countries rose slightly. Exports to the rest of the world, notably India, Brazil and Russia, have doubled in the last seven years, to 32 percent this winter.

As the Chinese economy continues to overheat as many more mature countries are leveling, discovering the sources of sustainable growth is key to the investment process.

The statistics are proving to be ever increasingly important as the rest of the global economy is planning and scheming to sell to the largest population in the world. Most of the industrialized world from Asian neighbors to the United States has drooled at the opportunity to tap the mother lode of all populations. A key issue selling into the billions of citizens has been the basics of their earning power and savings rates, which are not comparable to the more mature economies of Japan, Western Europe or the U.S.

The BIGresearch survey highlights some interesting statistics. There are 380 million young (18-34) people, 191 million of which are men that are consumers of luxury brands and other key consumables. Imagine exporting to China, and gaining some of our currency and balance of trade back.

Key findings of the survey* include such things as:

European brands continue to be preferred above U.S. brands in key categories such as Clothing, Cosmetics, Furniture and Jewelry
Consumer confidence remains very high
Planned expenditures on electronics are much higher in China than in the U.S.
Chinese men and women say surfing the net is their #1 leisure activity
Word of mouth is even more influential to Chinese consumers than U.S. for Electronics, Clothing, Autos and Pharmaceuticals

Though Word of Mouth ranks as the number one influence for electronics purchases for men ages 18-34 at 52.6% in the U.S., only 38.6% of Chinese men ages 18-34 say the same.

Acting globally and thinking locally has different meaning in different parts of the planet.

Top 5 Media Influences for Electronics* (Men Ages 18-34)
China	United States
Read article on product	Word of Mouth TV/Broadcast
Magazines	Read article on the Internet
Read article on product Magazines	TV/Broadcast
Word of Mouth	Internet Advertising
Source: BIGresearch, April 2007

The newest ETF for China may ultimately be global exporters to China. We haven’t put an analyst on it quite yet, but its day may come sooner than you think.

*The China Quarterly by BIGresearch, primarily tracking 18 to 34 year olds' positions on purchase behaviors, brand preferences, purchase intentions, product usage, health topics and future spending in key product categories, as well as media consumption, simultaneous media usage and media influence on purchases.

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