Shaun Rein

Two More Myths About Business in China

Semuren -- you cannot be serious. If you have lived in China for 10 years, you cannot honestly say that the quality of life for people here is not getting better... and certainly it is better than during the Civil War, Great Leap Forward, Cultural Revolution etc.

Is everything perfect? Absolutely not. And stories like the one you said about the hospital is heart-breaking and unfortunately true. One of my main goals in life is to set up hospitals/ clinics for poor people in China's countryside.

But net-net, the last several decades have been better for the majority of Chinese.

As for savings rates, most economists wrongly argue that Chinese save 40% of their earnings. Pettis has some decent points, though I disagree with most of his conclusions, I do respect him viewpoints. He is basing his conclusions on good facts, I just disagree with the interpretation. But I assure you I know what savings rates are.

Huangthoms -- you always like to criticize my pieces. that is fine. Good debate is always welcome. However, please re-read some of the pieces I write. It is clear in my latest that I am talking about urban youth. In commentaries that should be 600-1000 words I cannot write about every single segment. So I agree with you that rural youth are different.

Where did I ever say anything about Japan? Please keep up your criticism for sure, but please base it on what I actually write or which I omit because I am wrong... but not what I make clear I am not including.

By the way, I am certainly not using anecdotal evidence. For this piece, we drew upon several thousand interviews in 15 cities. Please...

Nogambler/ rokjok -- thanks for the comments. credit cards are booming. the key is which banks will benefit, which you should keep in mind when investing. china merchants bank is very consumer oriented, while ICBC and Bank of China get terrible satisfaction rates, especially BOChina.

Yes, more and more white collar executives are here. China is coming on strong and American firms need to adjust.

Haavbline -- thanks again for your kind comments (I noticed you have written several in the past). Thanks for clarifying my positions to the rest of us here and making it clearer what I am trying to say, with your own excellent insights. What do you do?

Giuliionginni -- I would strongly suggest you look at China for investing... be careful for sure ... but waiting until 2020... you might miss out. The numbers are positive here for sure... there are concerns in my mind about China's economy but overall it is positive here.

Gary a: right now chinese consumers accou nt for 1/3 of gdp.. we estimate that to hit 1/2 within 5 years.

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.

Two More Myths About Business in China

Chris Coonan/BlueSky/ Axit/Shark/ Nikola- Thanks for kind comments. I agree with you, just is getting to be a better and better place to live for just about everyone. I first came here in the mid-90s and the quality of life change is palpable. Sure, not everything is perfect but the key is that the trend is towards the better.

Ricard - I would actually say in urban areas (not rural) that women have more gender equality than just about anywhere in the world. They are becoming the major consumers as more jobs are created that are in the service sector. In fact, in many migrant households the women might be earning more. Foot massage (legitimate) masseuses make more than male counterparts as construction workers. I have written extensively in Forbes in the past on this that you can check out.

Huangthomas -- thx for comments and insights. Salaries keep going up so for now the lifestyle is sustainable for most... and these kids of sevearl sets of homes that will be given to them because of grandparents.

The issue is what happens id salaries don't keep going up. Then we would be in a serious problem.

Bengee- exactly. Life is definitely better for most Chinese. Investors need to look at who is optimistic. Optimism and confidence is a great indicator of how/ where one will spend. Investors should look at that.

Monkey Man -- thanks for comments but I slightly disagree. The average millionaire in China is 42 years old. Most are younger than that. Because of the Cultural Revolution, there is a lost generation of Chinese businessmen who missed out from around 45 to 65. Take a look at my piece in Forbes called Tap Into China's Swelling Consumer base. It looks at some of your criticisms.
www.forbes.com/2009/10...

Alphameister and Tony Daltorio - thanks for the kind comments. I am always very surprised at how pessimistic and bearish Pettis is. I respect him as he is basing his arguments on facts and knowledge but I just don't understand how he can possibly be so negative. There are problems here but nothing that is as disastrous as he makes out.

For me, most of the bears like Roubini or Roach are interesting reads but one should not get too influenced when making investment decisions. Darn it... the last year has been the best investing climate of all time if you had some cash and were not too scared. Baidu has quadrupled. Ctrip.

If you looked at the investing pieces I wrote specifically for Seeking Alpha a year ago and before, you would have made a lot of money.

BD1990 - thx for note. Yes, those rates I marked down are for true credit cards. There are actually about 1.2 billion debit cards in circulation in China.

TeresaE -- Thanks and I agree with you. Rural poor will quickly catch up and start to consume like urban ones. It is starting to happen. OUr research suggests that the most optimistic consumers are the ones in rural areas right now because they are working for companies (chinese) that have not been hit as hard by crisis and still have access to credit.

I do think that American firms that get this shift, say a YUM brands or PG, will benefit.

Graham -- never forget the past for sure. Hiistory is important to know. BUt don't get too stuck in it either. Your parents time in China is very different from today's China.

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 ...

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%...

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.

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?

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