China's Consumers Grab Spotlight
By Gregg Greenberg
TheStreet.com Staff Reporter
11/22/2004 7:03 AM EST
If the U.S. consumer is driving the global economy, his Chinese counterpart is getting ready to ride shotgun.
No one disputes the leading role that American consumption plays in the global food chain. But growth-minded international fund managers are increasingly looking across the Pacific, where rapidly rising incomes are creating a burgeoning Chinese consumer class. As a result, the world's most populous nation has seen a wave of interest in consumer stocks, in addition to the stocks of the exporters that have caught the investing world's fancy in the past.
"The per capita income in China has grown from $280 per year two decades ago to over $1,000 last year," says Richard Gao, portfolio manager for the Matthews China fund. "When you consider China has a population of 1.3 billion people, that's a lot of cars, houses and electronics yet to be purchased."
Adrian Au, portfolio manager for the Dreyfus Premier Greater China fund, estimates that there are 40 million households with an annual income of $12,000 or more, which accounts for 15% of the total households. He predicts this middle class will expand to 120 million households by 2010, significantly deepening the consumption pool.
Another demographic trend swelling the ranks of potential shoppers is the influx of 14 million persons a year moving from the countryside to cities, or, as Phil Ehrmann, portfolio manager for the Gartmore China Opportunities fund, describes the process, "moving up the stepladder of development."
The Chinese growth story is nothing new. For years the country's growth and creeping embrace of market forces have been cheered by free-trade types in the U.S. and Europe. What has changed is that domestic consumption, rather than the export game, is increasingly driving China's economic expansion.
To take advantage of China's burgeoning middle class, Matthews' Gao puts 22% of his portfolio in consumer discretionary stocks such as Hong Kong based hotelier Shangri-La Asia and computer manufacturer/retailer Lenovo Group.
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