Shaun Rein

China: Is Retail Growth a Proxy for Consumption Growth?

Sales in Beijing is certainly not indicative of sales throughout China. According to our research, the most pessimistic consumers (aside from those in Guangdong) are in Beijing and Shanghai. Growth is being driven in 2nd, 3rd and 4th tier cities. Brands that have exposure there are doing fabulously well, while brands that only focused in BJ/ SH are getting hit harder. Also, some brands are taking a hit while others (usually the ones that are better branded) are doing very well so empty malls in Beijing mean nothing to overall retail sales. We have conducted what I think is the most exhaustive research into Chinese consumers... 15 cities in recent months ...

China: Is Retail Growth a Proxy for Consumption Growth?

It really amazes me how folks continue to be so bearish on retail sales in China... and even more surprising that folks say that the sales are massaged by the Govt etc. or made up.

It is simple... call the retailers and interview consumers. Consumers keep on spending and some retailers (the better branded ones) are booming while some retailers collapse. But sales are very real.

Sorry folks who are naysayers about everything, most of my clients are seeing record sales in China and they certainly are not selling everything to the govt or being forced to fake numbers.

CNBC Shaun Rein Interview: Behind China's Wheel

HI,

Here it is again.
www.cnbc.com/id/158402...
If that does not work, please send me an email and I will send that link to you directly.
I tried to use the link button...

On Apr 20 10:47 AM Hedged In wrote:

> Shaun, can you republish the link? (I think you need to highlight
> the link and use the link button).

Everyone Is Working Hard to Increase Global Trade Imbalances

Another excellent piece Michael. While I do not always agree with your conclusions, your opinions are well-received here. Keep the torrid publishing pace up.

I chime in here because you highlight a good point that many analysts have noticed -- I am dubious of whether interest rate cuts will have any affect on boosting consumer consumption or at least not anytime soon. The interest rate cuts have been spurring more lending to SOEs which slowly if at all trickles down to the middle class Chinese who are the segment that we should be looking at to drive consumption.

I am working on a piece about this in part.

To boost consumption in China, one thing China should do is reduce import duties which causes everyone to shop abroad. Did you know that Chinese consumers buy about $6.5 bil USD worth of luxury products every year but that only 1/3 of that is actually bought in China because tariffs cause products to be 20-30% higher in China and because there is more cachet for shopping in Hong Kong or Europe?

China Is Looking Fragile

" “The benchmark one-year lending rate was cut by 27 basis points to 5.31 per cent, while the one-year deposit rate was lowered by the same amount to 2.25 per cent.”

This is not surprising news, but shows originality - China doesn’t want to be like the US, thus it cuts interest rates in multiple of 27 basis points, not a boring 25 basis points. ""

Vitaliy, if you are going to point something out like this especially.. please do some research ... the basis points drop 27 basis points is because so many banks in rural areas use abacuses still rather than computers to calculate. It is easier for them to calculate at the 27 level with an abacus rather than the Chinese Govt trying to be original or misguided in policies as so many pundits far from China seem to think.

Will U.S. Growth Beat China's in 2009?

"A key mistake made by the Fed in the 1930s Depression (and one identified by Ben Bernanke in his PhD thesis) was to constrict money supply at a critical juncture after the Wall Street crash, and that is an error the current Fed is taking extreme pains not to repeat. However, Chinese authorities, lacking that institutional memory, are set to repeat this mistake just as the country's merchandise exports slump despite ever increasing export subsidies and a recently depreciating currency."

Ummm... China announced 2 days ago that it was increasing money supply by 17%...

Multinational Mistakes: A Lesson for China, Too

I will be a little facetious in my response, Larry. You served up a great question for me to sell myself.

I wish more MNCs did indeed see the value of high end market intelligence since I run a market research firm. And as I wrote in Invest in China's Wedding Fever, china.seekingalpha.com..., one of my analysts just got married and is hunkering for a bigger bonus next year!

We have found that the best run MNCs are indeed investing the money necessary to get the best market intelligence for international operations. Unlike even a decade ago, international markets accounted for so little revenue. Now, markets like China or India have become of such strategic importance to MNCs, not just for outsourcing but also selling to Chinese and Indian consumer, that companies now realize the importance of good info.

From my own experience with my clients expanding or just entering China, most of them are best of breed companies whose returns beat the S&P or make a ton of money if they are hedge funds/ VC firms or private firms. Others are turnaround cases that need top-end information to retake lost market share. I once helped a company that was a distressed debt acquisition by a big buy-out fund in New York. I advised them on relocating part of their operations to China. The buy-out fund saw a 8 digit return on their initial investment.

The good news for investors is that more MNCs are using the consulting services of premium firms like a McKinsey or CMR because the ROI is noticeable. China will fuel more and more the bottom-lines of many MNCs in the coming years like a Corning or Starwood.

Sorry for the semi-marketing response, but I could not resist it.

Shaun Rein