[lbo-talk] The Chinese stock market collapse in global context

Marv Gandall marvgand2 at gmail.com
Fri Aug 28 09:31:11 PDT 2015

On Aug 28, 2015, at 10:36 AM, Eric Beck <ersatzdog at gmail.com> wrote:

> On Friday, August 28, 2015, Doug Henwood <dhenwood at panix.com> wrote:
>> China's GDP is up 2,500% since 1980, 300% since 2000. People who go on
>> about stagnation and the crisis of capitalism, how do you explain that?
> And bringing down growth rates, to a mere 6.5-7%, has been a conscious aim
> of Chinese leadership since c. 2011.

It appears that the steady shift from an export-led economy to one based on services directed at the rapidly growing urban working class - described as “ordinary consumers” in the following report - is proceeding apace, whatever other cyclical and structural problems the Chinese economy is presently experiencing.

* * *

China slowdown belies consumer market health Ben Bland in Hong Kong Financial Times August 26 2015

Stock market turmoil appears to be far from the minds of Beijing residents

Growing evidence of China’s economic difficulties and the ensuing stock market rout have sent shockwaves around a financially troubled world that has been banking on China to stimulate demand.

But while sales of luxury goods from Prada handbags to Rolls-Royce cars have slumped, some companies focused on ordinary consumers in China are finding ways to maintain their businesses, selling more washing machines and rice crackers as the economyslows.

Analysts say the dramatic, negative headlines belie a vast, complex and increasingly competitive consumer market where companies have to fight harder to boost their sales, whether by offering cheaper, smaller package sizes at the lower end or improving their products and customer service.

Retail sales have been growing at an annualised 10 per cent in recent months, according to official data, but analysts are sceptical about the government’s figures and believe that even in the best case they cover up wide divergences between companies.

“Consumer demand has always been there in China and in the past it was easy for companies to grab it,” says Spencer Leung, a consumer industry analyst at UBS in Hong Kong. “But things have slowed down and only those who can offer differentiated goods can capture demand.”

He says that multinational companies focused on the mass market in China have been particularly good at maintaining their performance as annual gross domestic product growth has dropped from more than 10 per cent in 2010 to 7 per cent in the second quarter this year.

Coca-Cola, PepsiCo and Nike all reported expanding sales in China in their most recent updates, while Tim Cook, chief executive of Apple, arrested the slide in his company’s shares on Monday after telling a US TV show host that he was seeing “strong growth” in China in July and August.

Ben Cavender, an analyst at China Market Research Group in Shanghai, says that while the stock market turbulence has worried some consumers, few are directly exposedgiven that only 6 per cent of households own equities.

The slowing economy, dragged down by the underperforming industrial and property sectors, has undoubtedly hit consumer confidence but it has also changed the way people buy.

“People are still spending but they are more careful about how they spend, with more focus on features and functions, after-sales support and how products fit in their life,” says Mr Cavender.

Samsonite, the suitcase maker, saw its China sales suffer over the past couple of years but delivered an annualised 28 per cent jump in sales in the first half of this year after it shifted its focus away from luxury to more affordable products.

“Most consumer companies see that consumers in China are becoming smarter, they want to buy goods with better value,” says Ramesh Tainwala, Samsonite’s chief executive. “That trend was already starting over the last two years and will only continue.”

Zhou Yunjie, chief executive of the Hong Kong-listed subsidiary of Haier, China’s largest distributor of home appliances, says the company has mitigated the impact of the property slump in third and fourth-tier cities by becoming more nimble.

He explains that his division, Haier Electronics, has focused on selling high-tech washing machines to better-off consumers, promoting low-cost water heaters in rural areas and making a big push into e-commerce and logistics after signing a partnership with Alibaba, the Chinese internet group, in 2013.

In the first half of the year, sales of air conditioners and refrigerators dropped but Haier Electronics reported an increase of 4-5 per cent in sales of washing machines and water heaters.

“For white goods suppliers, sales really differ across categories,” says Catherine Chan, an analyst at Citigroup in Hong Kong. “Where we see growth, it is by increases in average sales prices, not just higher volumes, as people upgrade to better models.”

Other leading consumer companies have seen similar divergences in their product lines.

Want Want, which sells snacks and drinks, saw milk sales fall by 3 per cent year on year in the first half, while rice crackers sales jumped by 10 per cent because of promotional campaigns.

Belle International, China’s biggest shoe retailer, closed 167 of its more than 20,000 stores in the three months to May as sales at its footwear shops dropped by 8 per cent year on year.

But its sportswear stores increased sales by 12 per cent in the same period, as it capitalised on the rising fitness trend in China.

Erwin Sanft, the head of China strategy at Macquarie in Hong Kong, says that while consumer companies have not delivered the stellar growth expected of them in the past, the best companies have managed to maintain their profits.

“In other parts of the economy, like commodities and industrials, profits have been wiped out,” he explains. “When you include the growth of tourism, entertainment and e-commerce, we haven’t seen that much of a slowdown in the overall consumer sector.”

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