Author: sangfundu

Baby Business Booming in China

Those in the baby business should definitely take note of China’s family planning. According to the National Bureau of Statistics predictions, China will experience a massive population boom from 2005 through 2020, with the country’s birth rate peaking in 2016.

Even more significantly, many Chinese families will target 2012 as the year to have a child, as it’s the year of the dragon. This icon symbolizes power and wealth, and 5% more babies are born under the dragon than are born with any other symbol.

As Jessie Guo, Jefferies Group Inc.’s Hong Kong-based head for consumer research in Asia, recently said, “The baby boom is a good investment idea in the near term. The growth is likely to sustain for the next two to three years.”

Michele Mak, a consumer-sector analyst at BNP Paribas chimed in and said, “The dragon year baby boom is almost a sure thing, which will boost the demand for infant products such as baby formula, diapers and clothes.”

Many people still believe that China has a strict one-child policy; that policy from 1979 has been modified to accommodate for China’s aging labor force. Couples who are both only children are now being allowed to have two kids of their own; and rural couples whose first child is a girl older than four are also allowed to have another child.

With the rise in income, this is set to create a niche market for baby-food and baby-care products that many would be smart to be part of.

Chinese Study on Branding Shows Important Changes

Agency Millward Brown and media company WPP have recently looked into Chinese branding and consumer opinions. Looking at the 50 most valuable Chinese brands, they found that 83% of consumers outside of China couldn’t name a single Chinese brand or company.

China, of course, wants to create a global present, as Adrian Gonzalez, the head of Greater China at Millward Brown, explained. Chinese brands clearly need to do much more work to become distinguishable in the competitive marketplace internationally.

In China, however, the brand study found that, of the 35,000 consumers, Chinese brand value has grown to US$325 billion in the last year. This is a 16% increase from the previous year.

Gonzalez said that today, “We’re seeing in many cases now that foreign companies feel the best way to succeed in China now is through acquiring a Chinese company.” He pointed out that this was not the case previously.

The study also showed a significant change in the use of state-owned enterprises, as the study showed that “Government protectionism is starting to wear thin.” This is a dramatic contrast to the findings in the 2010 study. Half of the brands that were on the list that were less favorable with consumers were state-owned.

The Macro Euro-China Enterpreneurs Club

China and Europe are strengthening ties, as the Macro Euro-China Entrepreneurs Club recently signed an agreement with the government of Heilongjiang of China’s northeastern province to help 100 European firms. These firms will attend the China Harbin International Economic and Trade Fair (HTF) next year.

The fair will take place from June 18-20, 2012 and will include 100 firms from 15 European countries. Commerce official Chu Zhihui of Heilongjiang said that the member firms of the club have expressed their interest in many areas include food processing and car production.

The Macro Euro-China Entrepreneurs Club which is based in Paris is a non-profit organization that serves as a match maker between European firms and investment opportunities in Asia.

This year’s upcoming fair is jointly organized by the Ministry of Commerce, the National Development and Reform Commission and the China Council for the Promotion of International Trade and the local government. It’s been taking place in Heilongjiang for the last 22 years and had $17.82 billion worth of overseas-related contracts just last year.

Nestle SA Acquires Stake in Yinlu

Nestle SA just finished acquiring a 60% stake in China’s Yinlu Foods Group, the company recently said in a statement.  After the acquisition, Chairman of Yinlu, Chen Qingyuan, will stay in charge of the join company in Xiamen.

The deal is still waiting for final approval from local governments that include governments in Fujian, Shandong and Hubei, but it has already received the approval from the Chinese Minister of Commerce.

The companies have announced that they plan to invest 2.4 million yuan ($395 million) in Yinlu which will aid in the production of new facilities and the expansion of existing ones.

Nestle SA’s goal with this investment is to double the amount of its investment in the Chinese coffee market within the next three years.  Yinlu had a 52.5% increase in its revenue in 2010, reported a revenue of 5.4 billion yuan. 

Nestle SA is also reportedly planning to purchase a 60% stake in the Chines candy maker Hsu Fu Chi International Ltd.

Porsche Expands in Chinese Market

As reported by Adam Roseman of ARC China, China will soon overtake the United States as the location with the largest Porsche AG market. As Helmut Broeker, CEO of Porsche (China) Motors Ltd. said, “China has been our second-biggest market, with more than half of sales coming from our SUV model, the Cayenne. We expect it to beat the US to be our No 1 market in 2014, with significant sales growth from the coming, smaller SUV model, the Cajun.”

The SUV has surged in popularity in China in the past four years with the fastest sales growth of any class of car. IN 2010, 1.33 million SUVs were sold, according to the China Association of Automobile Manufacturers. This represents a sales growth that is almost four times that of sedans.

The Sinotrust International Information & Consulting (Beijing) Co Ltd. has reported that SUVs show the largest potential for growth in the years ahead.

Porsche established itself in the Chinese market 10 years ago, and they expect to have “100 dealers by the end of 2014” according to Broeker. As Broeker said,

“The strong growth brings a big challenge: We need to provide enough, and high-quality, service to the customers. So the major task for us in the next year will be training our dealers.”

A Porsche Driving Experience Center will soon be opening in China, as well, as only the third country to have such a center after Germany and the UK.

China’s Internet Retail Market Taking Off

According to the Boston Consulting Group Inc., China’s internet retail market may soon be overtaking the one in the U.S. as the world’s largest. In 2010, e-commerce sales in China were at 476 billion yuan, as compared to 128 billion yuan in 2008.

The report further estimated that 44% of city dwellers in China will shop on the Internet in 2015, while 23% did this past year.

As the consulting firm said, “Internet access has far outpaced the reach of the top physical retailers. China’s massive geography hampers the effectiveness of physical retailing.” China’s online retailers are also doing so well because China has incredibly low shipping costs ($1 on average for a 1-kilo parcel as compared to $6 in the U.S.). In addition, income is rising throughout China, helping retail sales to increase.

Chinese Manufacturers Looking Elsewhere

While most of us think of “Made in China” as a ubiquitous label, China is beginning to look elsewhere for its manufacturing needs. Labor costs in China have risen 15-20% each year for the past few years, causing many Chinese companies to look elsewhere.

Many companies, as a result, are looking to south-east Asia for their manufacturing needs. They are finding, however, that such a move is not simple since their supplier networks and their worker productivity is much better in China.

Profit margins have dropped considerably for Chinese manufacturers from a height of about 10% to a low of 3% currently. In addition, Beijing has made a decision that they will be doubling wages for factory workers by increasing minimum wage. They plan to continue doing so every year for the next few – perhaps causing more people to look elsewhere for their manufacturing needs.

Some companies are selecting to keep their bases in China, while also setting up shops elsewhere. They find it difficult to completely move away from China, however, As Dong Tao, an economist with Credit Suisse said, “There is no developing country that can match half the efficiency China offers.”

China is Getting Connected with 3G Mobile Phones

China is definitely plugged in. Their 3G mobile phone users list just reached 102 million by the end of September. Nearly half of these people, or 43.16 million, use the country’s self-developed TD-SCDMA standard. This according to the Ministry of Industry and Information Technology (MIIT).

The State Council’s Information Office recently held a press conference at which Xiao Chunquan, the director general of the Bureau of Operation Monitoring and Coordination of MIIT said that China’s telephone users hit 1.24 billion at September’s end.

Economic Development in Xinjiang Uygur

Two new economic development zones in China have recent been opened for more construction. The State Council, or China’s Cabinet, has unveiled guidelines allowing these areas in the western Xinjiang Uygur autonomous region to be further developed.

The specific zones including the Kashgar and Korgas economic development zones in western and southern Xinjiang will receive fiscal subsidies and tax preferences to help with construction in these areas.

The goal is for the central government to help these zones to develop as regional hubs for China’s opening up to other Asian countries as well as to Eastern Europe.
The plan is for the central government to offer a certain financial subsidy each year from 2011 through 2015. They will exempt qualified enterprises from business income taxes for five years and they will subsidize fixed-asset investments while offering government loans.

The government will also focus on the construction of the China-Kyrghyzstan-Uzbekistan railway and the China-Pakistan railway to facilitate this regional growth.

Gap Stores Coming to China

China has been targeted as a new location for Gap, the US apparel retailer. Gap has announced that, by the end of 2012, they plan to triple the number of stores they have in China. Trying to counter their less than stellar sales in North America, Gap Inc, which includes Gap, Banana Republic and Old Navy, is outlining a strategy to increase its total sales.

Gap opened its first store in China in November 2010. Now, they plan to expand from their current 15 stores to more than 45 by the end of fiscal 2012.

As Glenn Murphy, Gap chairman and chief executive said in a statement, “The combination of our global strategy and formidable growth platform puts us in a strong position to expand our reach into the top 10 apparel markets worldwide.”