Monday, April 19, 2010

Opportunities Inland: Growth for New Regions and Sectors in China

If you are not investing in China, you are missing out. Although some businessmen have been deterred by the country’s lopsided export-driven growth engine, international investors are finding an array of potential growth drivers appealing. While financiers sit tight for the expected revaluation of the yuan, strategists claim that China’s future growth will come from many new sectors and geographical locations. Investment opportunities exist hundreds of miles west of Shanghai and Beijing, in China’s lesser populated inland provinces.

China’s smaller cities are still in the early stages of industrialization and urbanization, in a huge domestic market and plenty of room to grow internationally. These regions have great demand for better infrastructure as well as residential and commercial real estate to support that growth.

Earlier this year investors feared that China’s economy was overheating and Chinese stocks slipped. But buyers are returning and confidence is increasing due to structural adjustments by the Chinese government to curb unhealthy liquidity which causes bubbles. China’s central bank moved to raise the reserve requirement ratio and slow exorbitant loan growth by banks. Internationally these were seen as smart moves and responsible growth management. Now the perception has changed and equity performance is cathching up. The MSCI China Free Index rose 2.2% so far in 2010, and almost 4% in April alone.

The next question is where exactly to invest. Chinese banks are announcing great returns, lower provisions for risky assets and higher fee-based income. Many analysts believe that China’s financial sector is likely to be very profitable in 2010. Another rapidly growing sector is China’s clean-tech industry. The world power reportedly spent $35 billion on renewable energy in 2009, including an international push into wind turbines. China’s low costs and relatively advanced technologies make it a fierce competitor in energy alternatives.

As second and third tier cities continue to growth robustly, plenty of new support infrastructure will be needed. China has openly been buying up natural resources, commodities, cement, and metals which are inputs for further development of public transportation systems. China still does not have a national railway or highway system. Finally, consumer services and leisure are a safe bet for solid long-term growth. As China develops, wages are rising and people have more to spend on vacations and fancy restaurants. Luxury goods and services will be big business.

Keep an eye on China’s growth and don’t be afraid to approach the beast. There are plenty of opportunities and partnerships abound.

Photo Credit:
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  1. I think in particular, luxury goods have been moving into second and third tier cities. Larger brands like Louis Vuitton have ventured into third tier cities in China, while smaller luxury brands, seeing the value, are still working on moving into the biggest cities (i.e. Georg Jensen's move into Shanghai:

  2. The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side.

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