Adam Roseman Online

Though China’s economy has ebbed and flowed remarkably this year, with expert predictions shifting endlessly, the country has managed to keep above water.

This likely has to do with China’s consumer sector, which, according to DBS analysts, offers “better resilience during the harsh times as well as fruitful returns whenever skies clear again.”

In an article discussing consumerism, ARC China’s Adam Roseman discussed why this year is a ‘year of opportunities.’

“The Chinese government favors rebalancing economic growth toward consumption. To that end, it is pursuing policies that increase the minimum wage, limit individual medical costs, accelerate urbanization with new transportation systems, and build millions of units of affordable housing,” he wrote.

“The big trend lies in the discretionaries. DBS Group sees the yuan continuing to appreciate, increasing the purchasing power of mainland consumers. High-end merchandise retailers will continue to spread into China’s provincial cities, and sustainable inflation will prompt demand for valuable assets, including gold and luxury watches. The home appliance industry will also benefit from energy savings subsidies introduced by the Chinese government in 2011.”

Lenovo, the Chinese computer manufacturer, announced a few months ago that the market share gap between it and HP has been reduced to 2%.

Adam Roseman of ARC China explained in a newsletter: “Lenovo reported record sales of $8.4 billion for the company’s fiscal third quarter of 2011. It also won a global market share of 14%, making the company the second-largest PC maker by market share, after reducing the gap with HP to 2% from 9% in 2010, according to the IT research company International Data Corp.

The company attributed its performance to a dramatic surge in sales of Internet mobile devices and growth in mature markets. The company said sales revenue for its Internet mobile devices, including tablet PCs and smartphones, grew 159% year-on-year to $565 million between October and December.”

Private equity in China is booming; more than $30 billion has been raised since last year. Deals in the sector are also increasing rapidly in the region.

In a newsletter article, ARC China’s Adam Roseman writes:

“More money in, however, does not necessarily mean more money will come out through IPOs of other exits. In fact, on the exit side of the ledger, there is no real growth, but instead probably a slight decline, as the number of domestic IPOs in China stays constant and offshore IPOs (most notably in Hong Kong and USA) is trending down. M&A activity, the other main source of exit for PE investors, remains weak in China.”

China’s consumer market is a limited one, mainly because it is contained within the country’s borders. However, DBS Group Research believes that this is a “beauty of both sides.” They also add that consumer companies provide “better resilience during the harsh times as well as fruitful returns whenever skies clear again.”

“More practically,” writes Adam Roseman in an ARC China newsletter, “the Chinese government favors rebalancing economic growth toward consumption. To that end, it is pursuing policies that increase the minimum wage, limit individual medical costs, accelerate urbanization with new transportation systems, and build millions of units of affordable housing.

“The big trend lies in the discretionaries,” he continued. “DBS Group sees the yuan continuing to appreciate, increasing the purchasing power of mainland consumers. High-end merchandise retailers will continue to spread into China’s provincial cities, and sustainable inflation will prompt demand for valuable assets, including gold and luxury watches.”

China’s government recently revealed its goal of raising the country’s minimum wage by at least 13% each year from now until 2015.

According to a newsletter article by ARC China’s Adam Roseman: “In developed coastal regions and a number of other areas, many enterprises, especially small and medium-sized ones, do not have a complete wage distribution system and still set worker’s wages at a level that meets or is slightly higher than the minimum standards. The proportion of the minimum wage to the average salary varies in different places, ranging from about 20% to 30%. In Beijing, the minimum wage is RMB 1,260 a month; in downtown Chongqing municipality, it is RMB 870 a month.”

In an ARC China newsletter, Adam Roseman explained that China’s more rustic population has extended beyond its traditional areas for the first time.

He wrote: “China’s urban population surpassed that of rural areas for the first time in the country’s history after three decades of economic development encouraged farmers to seek better living standards in towns and cities.

“The world’s most populous nation had 690.79 million people living in urban areas at the end of 2011, compared with 656.56 million in the countryside, the National Bureau of Statistics said. That puts the number of people residing in China’s towns and cities at double the total US population.

“China’s urbanization has accelerated since Deng Xiaoping introduced capitalist reforms in the late 1970s, lifting more than 200 million people out of poverty and transforming the nation into the world’s second largest economy and its biggest consumer of steel, copper and coal. That migration may have decades more to run, diluting an agrarian economy that was once the ruling Communist Party’s power house,” Roseman explained.

China’s hotel industry has been rising over the past few years, and hotel executives believe that the country is a ‘safe haven’ for luxury hotels.

In a newsletter article for ARC China, Adam Roseman quoted Charlie Dang of Starwood Hotels & Resorts Worldwide as saying “We haven’t felt the crisis that they are experiencing in the U.S. and Europe.

“The domestic economy is still very strong. Generally the second and third-tier cities are growing rapidly and that helps our business.”

The Crowne Plaza Hotel, located in Dandong, a third-tier city, reported an occupancy rate of 80% in the summer, and 60% throughout winter seasons.

“These are very good results for us,” said Ren Shixuan, the hotel’s public relations manager.

CASS predictions for 2012 industrial competitiveness has suggested that exports of resource and labor-intensive products will remain the most competitive in the export industry in China, according to an ARC China newsletter by Adam Roseman. China’s export structure currently accounts for 34% of global exports, and is growing rapidly.

Zhang Qizi of the Institute of Economics at the Chinese Academy of Social Sciences said “Made-In-China’s products are still the most competitive in the global market, the risk is that (the country’s) share of the global export market may shrink.”

He added that growth momentum was affected by the global crisis in 2008, but growth has been on the rise and is likely to increase in the coming year.

In a newsletter for ARC Investment Partners, Adam Roseman revealed that China’s banks received higher rankings than most of their U.S. competitors.

Bank of China and Construction Bank were upped from A- to A, while Industrial & Commercial Bank of China Ltd.’s rating has remained an A. American banks including Citigroup and Bank of America were both lowered to A-, and UBS AG and Barclays were bumped down to A.

“You look at the liquidity conditions in China, they’re very good. You look at the policy impetus, the likelihood of government support, it’s very very high,” said Tom Quarmby of Barclays Capital. “Whilst lending might be higher risk, it’s just lending, it’s not exotic derivatives businesses or investment banking.”

According to a newsletter article by Adam Roseman of ARC China, China received a  104 in consumer confidence the third quarter in a survey conducted by the Neilsen Company.

The article states: “Consumers in Chinese rural areas expressed the highest level of confidence, with a one-point increase in the third quarter, followed by citizens of the most prosperous cities, such as Beijing and Shanghai- which are generally referred as first tier cities, along with Guanzhou and Shenzhen. Consumer confidence levels above and below a baseline of 100 indicate varying degrees of optimism and pessimism. Across China’s regions, Central and Eastern China both ranked the highest, followed by West China, and East/North China, respectively.”