Stocks To Capture China’s Baby Boomers

Many China watchers have written about China’s single child policy and how it has changed the business landscape here. Businessmen have drooled over the disposable income being allocated towards China’s Little Emperors by parents and grandparents. And the results for MNCs in China have been getting better and better as I wrote about in BusinessWeek, recently as nearly 50% expect to make money selling to Chinese consumers in 2007.

What many people fail to realize is that China’s first batch of Little Emperors are no longer children dependent on others for consumption patterns. Those first sets of Little Emperors born in the late 1970s are now about to reach their 30s. A much more apt moniker is needed than Little Emperor, so I have been calling them China’s Baby Boomers. The similarities in the consumption patters and ideals between China’s Baby Boomer and America’s are quite striking.

Chinese Baby Boomers expect that the quality of their lives will surpass that of their parents. They are marked with optimism and a can-do attitude which translates into consumption patterns of little to no savings rates. Like America’s baby boomers, Chinese Baby Boomers have parents who dealt with hardship and the legacy of tremendous turmoil. The Civil War between the Communists and the Nationalists, World War II (the War against Japanese Aggression), and the Cultural Revolution ravaged the parents of China’s Baby Boomers much as the Great Depression and World War II affected the parents of America’s Baby Boomers. The result in both countries are older generations that have fairly conservative shopping and saving patterns.

But their children are different. Both American and Chinese Baby Boomers experienced 30 years of relative peace and stability by the time they reached their 30s. Fueled by increasing disposable incomes and comfort in the 1940-1970s, American Baby Boomers spurred the go-go 80s. They bought Corvettes (GM) and Porsches and made Donald Trump (TRMP) an icon the first time around.

Chinese Baby Boomers have never experienced a downturn in the economy and have only seen yearly increases in the quality of life in China. They are starting to buy luxury products like Montblanc pens and are spurring this century’s first go-go climate.

Savvy investors will take note and invest appropriately. Like America’s Baby Boomers, China’s Baby Boomers are increasingly concerned by health. Investors should look at health care service companies and, more importantly, everyday products that tout health benefits. They should also look at leisure companies as China’s Baby Boomers will increasingly spend on products and services that make their lives more comfortable.

Health Care

Local green tea drink producers have clobbered Coke (KO) in some provinces in China. When my firm, the China Market Research Group CMR, interviewed Chinese Baby Boomers, they cited the “benefits to the health” for why they chose to drink green tea drinks over Coke. Respondents viewed Coke as “unhealthy”, especially as the Diet Coke-Mentos videos started popping up on Youtube. Some interviewed said that they would “never” drink Diet Coke again. One said, “If Diet Coke explodes like that when mixed with Mentos in a bottle, what does it do in my stomach?”

Similarly, dairy-based products and vitamins are becoming big as Chinese begin to get used to the taste and want the calcium to offset the osteoporosis that smacks many Chinese women. Investors should look at Mengniu Dairy [HKG:2319] and Danone (DA) as they have broad product ranges, from milk to cheese to the increasingly popular yogurt drinks.

Wyeth’s (WYE) Centrum vitamin brand has also carved itself a reputation as a top-end vitamin and can be found in most drug stores in China. Vitamins and supplements are becoming part of the daily routine of many Chinese.

Leisure Activities and Travel

Like American Baby Boomers who started to travel domestically and internationally in ways their parents never dreamed, China’s Baby Boomers are starting to travel to places within China to Yunnan and Hainan. If they can make it abroad, they go to places like Thailand and Hong Kong to go shopping for Estee Lauder (EL) cosmetics to Zara (ITX) clothes to Godiva (NSRGY.PK) chocolates. Wealthier ones make it to Australia, France and Italy to buy luxury items like Omega watches from the Swatch Group (UHR), bags and accessories from Coach (COH), or jewelry from Tiffany & Company (TIF).

Travel companies Ctrip (CTRP) and Elong (LONG) will see an up-tick in business as China’s Baby Boomers travel by air. China’s air carriers like China Eastern Airlines (CEA), China Southern Airlines (ZNH) and Air China will benefit from increased vacation travel despite rising fuel costs. Plane providers like Boeing (BA) and oil companies like Petrochina (PTR) will benefit too.

China’s Baby Boomers are also spending more on weekends when they do not travel outside the city. Instead, they are increasingly drive Mercedes (DCX) and buy tickets online to see movies and sporting events. Ticketmaster (IACI) just signed a deal to sell tickets for the 2008 Beijing Olympics and should see a boon from this as China’s Baby Boomers are increasingly savvy about e-commerce as I wrote before in China’s Booming Online Sales.

Conclusion

Obviously there are some differences between China’s emerging Baby Boomers and the graying American Baby Boomers. But the similarities are much more striking than the differences, and a number of publicly-traded companies stand to benefit.

Comments

[Emma Lei]

so what's the percentage?

[Silver-Bullet]

Nice angle on the China play. I look forward to future insights.