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China’s consumer promise? For investors it’s crowded and expensive

For all of the hype over China's economy-shifting consumer, the country's 'rebalancing' is no source of a quick buck.

China’s consumer promise? For investors it’s crowded and expensive

As investments go, there’s probably nothing on earth, past or present, to rival the frenzy around the growth of the Chinese consumer.

The Chinese authorities are depending on consumer power to ‘rebalance’ the economy – wean if off cheap exports and unsustainable government investment – the success of which will be pivotal for the health of the whole global financial system.

And for fund managers operating in the country, like Fidelity's Anthony Bolton, it’s their biggest selling point, the seemingly indisputable marketing tool for a country where growth is gradually slowing, but they hope becoming better quality.

But forget it. At least in the short term, says fund manager Jonathan Schiessl.

The Ashburton fund manager, who manages the Chindia fund which splits investors’ money between India and China, gives several reasons. For a start, the population may be huge and getting richer, but they still haven’t shaken off their old thrifty habits.

‘Until they get a decent social safety net people are still going to squirrel away a lot more cash than we do in the West. We’re still not there yet – the Chinese for many years will still be basic savers as opposed to consumers,’ he said in an interview.

‘We’ve seen a massive increase in consumption. But I still think we’re only at the beginning phase of that move,’ he added.

Economists debate how close China is to a successful rebalancing, as the country continues down its troubled path to reform.

In their highly-regarded Equity Gilt Study, Barclays Capital strategists said this rebalancing – or shift from ‘miracle’ economy to normal development as they described it – is happening perhaps faster than appreciated, at least better than always-contested official numbers show. But for this trend to stick further major reforms are needed.

On Monday premier Wen Jiabao opened the annual conference of the National People's Congress, its parliament, with plans to help this rebalancing by fuelling domestic consumption. At the same time he set the economy’s growth target at 7.5% for 2012, though this number is expected to be surpassed. 

But the consumer market that the economy – and investors – must tilt towards is incredibly fragmented, with few opportunities to actually profit from it, Schiessl notes.

‘There aren’t that many good quality companies that you can buy. The ones that are good quality are trading at huge premiums.’

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4 comments so far. Why not have your say?


Mar 09, 2012 at 08:41

Jonathan Schiessl Implies that thrift slows economic growth. It will do if personal thrift follows governent overspending. But if there has been no overspending but living within one’s means then it is continuing the habit of financing a nation’s sustainable growth. Moral is don´t overspend as it must eventually become unsustainable. Prudence was right. Good on the Chinese for their savings habit

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Mar 09, 2012 at 12:47

So, according to this piece, a small allocation in one's portfolio for the long term in one of the funds designed to to take advantage of future consumer growth in China makes sense, but anyone expecting good returns in the short term from such an investment is likely to be disappointed. I don't think there is anything surprising about this. Prudence and patience are both required.

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John Thorley

Mar 09, 2012 at 15:31

Spending always needs to be slightly above growth, generating mild inflation while encouraging increases in output and employment. Too much spending and the economy will enter a damaging inflationary spiral, too little and it will stagnate.

Private spendng is always preferable to government spending. A million people each spending £1 is much safer than one person spending £1 million. Also government spending is much more open to abuse that soaks up economc resources unfairly. 'Here you, don't bother growing food for the poor, come and clean out my moat instead!'

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Graham D-C

Mar 10, 2012 at 18:21

The fundamental difference between people in most Western countries and China is that in relative terms, the former have little or no savings to speak of and in the latter case the highest savings ratio in the world, with money to spend on items to comfort them in their retirement(as most elderly people would wish). To that end, anything that will prolong the health of the retired Chinese- medical care- diagnosis/ treatment, healthy food and drinks will be increasingly in demand.

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