China Retail Strength Key to eFuture Information's Growth

Aaron Fletcher's recent article introduced eFuture Information Technology's (EFUT) potential for exponential growth; if we look at the underlying foundation behind such growth, we find some tremendous opportunities in China retail. EFUT sells its software to the retail industry and understanding the growth of this industry is vital to accurately determining the merit of investing in EFUT.

Information provided by the National Bureau of Statistics, People’s Republic of China, shows that in 2004, the total retail sales of consumer goods reached 5,395.0 billion yuan, up by 13.3 percent over the previous year, or a real growth of 10.2 percent if price factors were deducted. This is one percentage point higher than the growth rate of 2003. Of this total, the retail sales of consumer goods in urban areas were up by 14.7 percent, and the retail sales of consumer goods at and below county level were up by 10.7 percent. In terms of different sectors, the sales of the wholesale and retail industry rose by 12.5 percent, and the sales of the catering industry was up 21.6 percent. Sales of communications products increased by 41.7 percent; household electric and audio-video appliances, 13.7 percent; motor vehicles, 23.4 percent; and oil and related products, 45.9 percent.

Taking 2004 as a back drop, we can zoom ahead to the present and find that in the first 9 months of 2007, the retail industry only contributed 37% to the GDP of China; this is significantly under that of major developed countries (for instance the United States GDP is driven by ~66% retail sales). In the first nine months, the total retail sales of consumer goods in China reached 6.38 trillion yuan, a year-over-year rise of 15.9 percent. This is 2.4 percentage points higher than 2006 retail sales growth.

In a work report to the 17th National Congress of the Communist Party of China, General Secretary Hu Jintao pledged to boost domestic demand in consumer goods to let retail sales play a bigger role in the economy. With the government of China working to make retail sales a bigger part of the economy, and the increase in retail sales that the summer Olympics will provide, I feel that EFUT is positioned to have a very strong 2008.

In the US, there is concern about retail strength and rightly so, considering that consumers are laden with debt. However, this is not the case in China. From January to September, the per capita disposable income of urban residents stood at 10,346 yuan, a year-over-year increase of 13.2 percent after adjustment for inflation, while the per capita cash income for rural residents was 3,321 yuan, a real growth of 14.8 percent year-over-year.

Some may argue that as the US and Western Europe slow, China will have no other choice but to slow down. As a whole, that is certainly possible, with export and investment being the largest factors in China’s overall GDP. However, retail sales will most likely continue to show significant strength due to the disposable income of the Chinese community and the added boost the summer Olympics will provide. Due to this underlying strength in China retail, specifically, I have recently opened a long position in EFUT and may add to it in the coming weeks.

Disclosure: Author has a long position in EFUT

Comments

[elmo]

and theres only less than 3mil shares outstanding