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China's Female Consumers Leading Consumer Spending To Nearly Double By 2015

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Consumer spending in China is expected to nearly double by 2015 in the retail sector, according to a report released by the Chinese Academy of Social Science (CASS).

 

Overall retail consumer spending is expected to reach RMB 27.4 trillion ($4.07 trillion) in 2015, which is 1.7 times the level of consumer spending reported in 2010, chinanews.com reported.

 

From 2006 to 2010, retail spending has seen an average growth rate of 18.1 percent per year, according to the National Bureau of Statistics.

 

Given that China's investment-driven economic growth cannot be sustained indefinitely, the domestic consumer market will be the key to future economic growth in China. Indeed, as fears of a double dip recession hit the world, the one consumer segment that has defied analysts and kept on spending at pre-recession levels are Chinese women.

 

Overall luxury goods sales in China have risen 20 percent annually since Lehman's collapse to reach $13 billion last year and that growth has been driven in large part by women under the age of 35.

 

3,000 women consumers in 12 cities in China were recently surveyed by China Market Research Group, and 85 percent of them said they expected to spend more in the next six months than in the last six. Despite recent food inflation, they remain optimistic about their own careers and ability of the government to navigate the country through crisis.

 

Women have become a major driving force behind China's economic and political growth - yet they remain little understood by western brand managers as an influence on household budgets. Not only are they exerting influence on decision-making in their own homes; they're also making purchase decisions for their parents.

 

Forbes reported last year half of the world's 14 self-made billionaire women are Chinese. Millions of girls have been raised in one-child families that have pinned their hopes on them since the late 1970s. In many cases, they are expected to make as much as men to take care of retired parents.

 

China's economy would continue to be a "bright spot" for global growth and the IMF maintains its forecast for China to grow around 9.5 percent for both this year and next, Acting Managing Director of the International Monetary Fund (IMF) John Lipsky said.

 

The transformation of China's economic growth pattern is important to the rest of the world. A re-balancing of China's economy from an export-dependent model to be domestic demand driven is critical for the stability and growth of the world economy, he said.

 

China is rapidly evolving beyond its role as a processor that responds to demand elsewhere to become a source of final demand growth. The trend is part of China's economic rebalancing, and is a major component of the investment thesis underlying ARC China's business model.

 

Adam Roseman

Founder & Managing Partner

ARC China

 

 

The Ascent of China To Become The World's Largest Economy

 

The projection that the Chinese economy will be larger than that of the US by 2016 included adjustments for the domestic purchasing power of the two countries' currencies. Some regard this interpretation of IMF data as a dubious move that artificially boosts the size of the Chinese economy. But even using real exchange rates does not defer the day when America is knocked off its perch by very much. A projection by The Economist, made just before Christmas, foresaw China becoming number one in 2019.

 

The ascent of China will change ideas of what it means to be a superpower. Over the course of the American century, the world has got used to the idea that the world's largest economy was also the world's most obviously affluent nation. The world's biggest economy housed the world's richest people.

 

As China emerges as an economic superpower, the connection between national and personal affluence is being broken. China is both richer and poorer than the western world. It is sitting on foreign reserves worth $3.0 trillion. And yet, measured at current exchange rates, the average American is about 10 times as wealthy as the average Chinese.

 

The relative affluence of US society is one reason why China will not become the world's most powerful country on the day that it becomes the largest economy. The world's habit of looking to the US as the "sole superpower" also makes it likely that America's political dominance will outlast its economic supremacy. America has an entrenched position in global institutions. It matters that the United Nations, the IMF and the World Bank are all situated in the US - and that NATO is built around America.

 

The US military has a global reach and a technological sophistication that China is nowhere near matching. The US is also ahead on "soft power," as China, as yet, has no equivalents to Hollywood or Silicon Valley.

 

And yet, while economic and political power are not one and the same thing, the two are still closely connected. As China becomes richer, so it becomes more influential. On a recent visit to São Paulo, a senior Brazilian diplomat said bluntly that distant China, as his country's largest trading partner, was now more important to Brazil than the US. The first foreign trip made by Dilma Rousseff, the new Brazilian president, was to Beijing, not Washington. Chinese trade and investment has also greatly increased the country's influence across Africa and in the Middle East.

 

The political questions raised by its economic power will be felt most acutely in China's immediate neighborhood. Japan, South Korea and Australia now find that their economic and strategic interests are pointing in different directions. All three countries have their most important economic relationship with China, and their most important military relationship with the US. If China throws its weight around too much - as it has shown signs of doing over the past year - Washington's Asian allies may hug Uncle Sam even more closely, for a while. But, over time, the growing economic power of China will weigh more and more heavily.

 

The power of China - combined with anxiety about the frightening public debts being built up in the US, the EU and Japan - will challenge western ideas about the relationship between democracy and economic success. Ever since the US became the world's largest economy, towards the end of the 19th century, the most powerful economy in the world has been a democracy. But, if China remains a one-party state over the next decade, that will change. The confident western slogan that "freedom works" will come under challenge as authoritarianism becomes fashionable, once again.

 

The debate about the future of China is in danger of becoming pointlessly polarised. One camp argues that China is the world's emerging superpower. The other insists that China is an intrinsically unstable country, at risk of an economic and political crisis. In fact, both ideas are true. China will be a strange superpower.

 

China's A-share Market To Raise RMB 1 Trillion

 

The country's A-share market is expected to raise more than RMB 1 trillion ($154.2 billion) this year despite government measures to withdraw liquidity out of the market.

 

The A-share market, or RMB-denominated stocks market, attracted RMB 438.4 billion ($67.76 billion) in the first five months this year, up about 56 percent from RMB 280.54 billion ($43.3 billion) in the same period last year, according to WIND Information Co Ltd, a Shanghai-based financial data provider.

 

China's A-share market raised a total of RMB 1.03 trillion ($158.82 billion) in 2010, up 123 percent from 2009, according to China Securities Regulatory Commission (CSRC).

 

Besides money already raised, more listed companies are queuing to raise about RMB 521.6 billion ($80.43 billion) this year, indicating the yearly volume will hit about RMB 1 trillion ($154.2 billion), according to WIND Info.

 

Capital supply is strained though with the unprecedented fund-raising size and the tightening monetary policies.

 

The central bank has raised interest rates twice this year and hiked the bank reserve requirement ratio five times.

 

It is widely expected that China will not stop tightening until inflation is firmly under control.

 

The Consumer Price Index (CPI), a major gauge of inflation, is expected to hit 5.3 to 5.5 percent in May and the central bank will hike interest rates again in June, Guotai Junan Securities analyst Li Xunlei said.

 

China To Become Global Banking King By 2023

 

China could leapfrog the United States to become the world's largest banking economy by 2023, 20 years earlier than expected, raising pressure on Western banks to brush off the effects of the credit crisis and head East.

 

According to a report published by consultants PricewaterhouseCoopers (PwC), India is expected to leapfrog Japan to rank third in terms of domestic banking by 2035 — and could pass China as its population rapidly ages.

 

PwC's chief economist John Hawksworth urged current banking leaders, whose power has been sapped by the credit crisis, to heed the accelerating shift in global economic power and claim a share of emerging markets' relatively unbanked populations.

 

"With populations of well over a billion each, access to markets like China and India is critical for growth," he said.

 

Chinese banks already dominate global rankings by market value, and some lenders have already secured heavy emerging market exposure to tap into booming demand for financial products from young and increasingly wealthy populations.

 

Banks in the fast-growing emerging markets (E7) of China, India, Brazil, Russia, Mexico, Indonesia and Turkey have been relatively shielded from the financial crisis that brought many western peers to their knees and sent asset values plunging.

 

With watchdogs determined to rein in institutions that presided over an exuberant era of high-risk expansion that culminated in a rash of taxpayer-funded bailouts, western banks are also contending with tough new regulations, which are curbing lending growth, while domestic populations age.

 

PwC, which based its report on projections for GDP and domestic credit and used net interest margins as a measure of profit, said E7 growth hinged on state investments in infrastructure, opening markets to fresh competition, reducing bureaucracy and budget deficits and increasing rural education.

 

It predicts that global banking assets could quadruple to around $300 trillion by 2050, with the GDP of the E7 level pegging with the G7 nations of the United States, Japan, Germany, the UK, France, Italy and Canada within the next two decades — and well ahead within the next four.

 

Britain, which it ranks fourth in terms of domestic banking assets, is expected to be pushed into fifth place by India within the next 20 years before fast-growing Brazil is likely to push it down another notch by 2050, PwC predicted.

 

But investing in emerging markets can be an uphill struggle.

 

"The E7 doesn't need the G7 for capital, decision making or consumers, so the established economies will have to make a strong case to convince new economy policy makers of the benefits of inviting foreign competition in," Hawksworth noted.

 

China's Economic Growth Maintains Strong Momentum

 

The momentum of China's economic growth remains strong as the country rolls out policies to develop strategic emerging industries, accelerate the construction of low-income homes and encourage private investment, according to a report of the People's Bank of China (PBOC), China's central bank.

 

Together with regional development strategies, increased consumption and ongoing urbanization have provided abundant energy for the country's economic growth, the PBOC said in its 2010 China Regional Financial Operation Report.

 

However, the report warned of risks posed by slumping growth in some developed economies, as well as risks created by the sovereign debt crisis, increasing global liquidity, rising international commodity prices and inflation pressures in emerging markets.

 

The country also faces resource and environmental constraints in the domestic market, as well as pressure to transform its economic growth pattern and create sustainable economic growth, the report said.

 

The country's regional financial institutions will continue to implement prudent monetary policies and manage the relationship between economic growth and inflation, it said.

 

They will also strive to maintain a reasonable overall financing scale, maintain steady control over the country's credit supply and increase innovation, it added.

 

Regional financial institutions will work to improve financial supports for strategic emerging industries and environmentally-friendly industries while tightening credit for heavily-polluting industries, it said.

 

In addition, they will continue to implement differentiated credit policies to support housing consumption and promote the healthy development of the property market, it said.

 

China To Pass Japan As Top Luxury Market In 2012

 

China is expected to replace Japan as the world's top consumer of luxury goods by 2012 due to its growing demand and the declining consumption in Japan, the World Luxury Association (WLA) said.

 

The luxury goods sales value in the Chinese market, excluding private jets, yachts and luxury cars, will hit $14.6 billion in 2012, the WLA predicted in a survey released in Beijing. That would be an increase from $10.7 billion in a 13-month period from February 2010 to March this year, according to the WLA.

 

The survey ranks China second with a 27 percent market share of global consumption by the end of May, slightly lower than Japan's 29 percent, and higher than 14 percent for the United States and 18 percent for Europe.

 

According to the survey, Chinese spent more on luxury goods overseas, such as the $50 billion worth of purchases of luxury goods solely in Europe last year.

 

"China has been rising with the fastest annual growth," said Michael Ouyang, the Chief of World Luxury Association China office.

 

The United States, Europe and Japan have scant room for further sales growth in the next one to three years, while more luxury brands will rush to tap the Chinese market, he said. Those companies that have opened stores in China's first-tier cities will embrace more opportunities in the second and their-tier cities, he added.

 

Luxury goods sales in Japan, the current top market, have been crippled by the devastating earthquake in March, which forced 49 percent of brand stores to halt business for one month after the disaster, according to the survey.

 

It expected the slump in sales will continue for a year, and 70 percent of brands will shift their commercial plans to China.

 

A stronger yuan and a weaker euro will also increase purchasing power of Chinese consumers, the survey said.

 

China 2nd Among Favorite Places For Green M&A

 

China is likely to attract more merger and acquisition interest in clean energy this year, Bloomberg News reported citing a KPMG LLP survey.

 

Of 500 global executives, investors, lenders and advisers from renewable-energy industry surveyed by KPMG, 38 percent said the China would be the top target for deals this year, and made the country rose to second place from fifth place in last year's survey. The US topped the survey with 53 percent. India, Germany and the United Kingdom followed.

 

Double the number of Asian respondents intend to invest in China and India than those planning to invest in Europe, the survey showed.

 

Deals are expected to outpace previous years as more financing options, rising oil prices and Japan's nuclear crisis shifts interest to the renewable energy industry, according to KPMG. Mergers and acquisitions doubled in the first quarter to a record $11.2 billion from a year earlier, said KPMG in an e-mailed report to Bloomberg News.

 

Transactions valued at up to $500 million may generate the most interest with biomass and solar power likely to be the most attractive buyout targets, the consultant's report said.

 

'Made In China' Strives For A Fashionable Cachet

 

Amid the blond wood, the softly draped fabrics and the dramatic display racks, not even the name of the JNBY clothing store - aimed at China's upwardly mobile middle class - gives away its homegrown origins.

 

The retailer says the initials stand for Just Naturally Be Yourself, though more likely they're drawn from the parent company's original name, Jiangnan Buyi Garment Co.

 

The women's fashion chain is one of a small but growing number of brands that are not only made in China but designed here as well, in an attempt to take on the Western labels that are popular with China's up-and-coming teens and twentysomethings.

 

"There's certainly some [Chinese fashion retailers] having a go at it. That sector of the market is among the fastest growing," noted Paul French, chief China analyst at retail consultancy Access Asia. "We're just waiting to see who emerges as China's Zara," he added, referring to the Spanish-based global fashion giant.

 

Last month alone, China's retail sales grew 17.1 per cent from the previous year, to RMB 1.36 trillion ($209 billion). Analysts say the "fast fashion" industry - clothing for the mere mortals who can't afford luxury brands - is among the most promising category in retail, because Chinese consumers are increasingly able to buy what they want, not simply what they need.

 

"Consumption based on emotional rather than practical needs is increasing rapidly," said Wang Gao, a marketing professor at the China-Europe International Business School. "The percentage spent on emotional consumption keeps increasing, and this portion now dominates total spending among the middle class."

 

European retail names such as Zara, Vero Moda and H&M have caught the attention of China's younger generation, and are reaping the profits. Inditex, Zara's parent company, which also operates clothing retailers Bershka and Pull and Bear, saw a 32-per-cent rise in profit in 2010, largely attributed to its China sales. It opened 75 new stores under all its brands in China in 2010 alone and plans to expand to 42 cities from 30 this year.

 

Chinese brands have struggled to overcome their reputations for poor quality and match that international cachet. But Chinese brands including JNBY, Ochirly, Meters/bonwe and Youngor, which focuses on men's wear, are beginning to challenge their foreign competitors at home.

 

"More and more people are starting to notice that China can produce our own fashion brands. For a long time, 'Made in China' represented cheap and low-quality products, but in recent years, 'Made in China' is beginning to represent a good ratio of quality and price," said Liesl Li, a spokeswoman for Meters/bonwe. The company had annual sales of RMB 7.5 billion ($1.16 billion) in China last year, she said.

 

One major obstacle for Chinese brands, marketing experts say, is that very few of them have managed to establish a strong reputation for a distinctive fashion. "The opportunity is huge," Prof. Wang noted. "The question is whether they can really build their theme - a consumer style that can attract Chinese consumers. It's not going to depend on one design or one set of clothes. It's got to be a whole brand … It seems they're not there yet."

 

China Home To 'World's Greenest Skyscraper'

 

It has been estimated that China will need to build the equivalent of "a Chicago" every year until 2030 if it continues on its current path of rapid urbanization that will see some 250m more people move from China's villages to its cities over that period.

 

The accompanying construction boom will suck up untold millions of tonnes of steel, copper, concrete, timber and oil, driving prices on the world's commodity markets and setting up a fiercely-fought global competition for natural resources.

 

Every week to 10 days, China opens a new coal-fired power station to provide the heat, light and electricity needed to power these glittering new skylines, with their offices and houses filled with computers, televisions and other power-hungry amenities.

 

Currently 95 per cent of existing buildings in China are not energy efficient, according to a 2009 report by the Asia Business council, however in recent years the Chinese government has laid far greater emphasis on building greener and better.

 

Progress is expected to be slow, but China already boasts the world's "greenest" skyscraper, the 71-storey Pearl River Tower, which was completed this year in the manufacturing hub of Guangzhou to international acclaim.

 

According to its designers, the building, which exceeds minimum Chinese requirements by 65 per cent, stands as a beacon of what is possible - and necessary - as the world strives to uses natural resources more sustainably.

 

China Surpasses US As Top Energy Consumer

 

Global energy consumption rose in 2010 at the fastest pace since 1973, as fast-growing developing nations led a strong rebound from recession, according to a survey released.

 

The overall 5.6 percent rise in consumption saw gains in all regions and all categories of energy, BP PLC said in its 60th annual Statistical Review of World Energy.

 

Consumption in the world's richest countries grew by 3.5 percent, the most since 1984, bringing it back to the level of a decade ago, BP said. Consumption in developing countries - particularly resource-hungry ones in Asia and South America - logged a 7.5 percent increase.

 

"By year-end, economic activity for the world as a whole exceeded pre-crisis levels driven by the so-called developing world," said Christof Ruehl, chief economist for BP.

 

Last year's surge was led by China, which increased its energy consumption by 11.2 percent, according to BP.

 

That moved China ahead of the United States as the world's biggest consumer of energy, accounting for 20.3 percent of global demand compared with 19 percent for the U.S., the report said.

 

The International Energy Agency reported in July that China had become the world's biggest energy consumer, though Chinese officials insisted their country still lagged behind the United States.

 

China was by far the world's largest consumer of coal, taking 48 percent. The United States had the biggest thirst for oil with 21 percent of global demand, double China's consumption.

 

 

 

SUSTAINABILITY

 

China Widens Lead In Renewable Energy Ranking By Ernst & Young

 

China widened its lead over the U.S. as the most attractive country for renewable energy projects, following its "greenest" five-year plan to date, Ernst & Young LLP said.

 

China's score out of 100 increased to 72 from 71 last quarter, while the U.S. remained in second place at 67 points in the consultant's quarterly Renewable Energy Country Attractiveness Index released in an e-mailed statement. India drew ahead of Germany to claim third spot.

 

"This is principally due to China diversifying its renewables portfolio through an increased focus on offshore wind and concentrated solar power," Ernst & Young said in the report. The group also cited new targets for renewable energy set in March in China's 12th five-year plan.

 

China took a lead in the wind and solar industries in recent years, and last year, the government's China Development Bank Corp. agreed to lend RMB 232 billion ($35.7 billion) to Chinese renewable companies. The UN's top climate change diplomat, Christiana Figueres, in January said China will leave "all of us in the dust" because of their commitment to win the "green economy race."

 

China in March published a five-year plan that included targets to raise the share of non-fossil fuels in primary energy consumption to 11.4 percent, cut the energy used per dollar of economic output by 16 percent, and the carbon emitted per dollar by 17 percent.

 

Ernst & Young assessed criteria including regulations, planning barriers and access to capital, land and the electricity grid. China took the lead last August for the first time since the ranking started in 2003.

 

The March 11 tsunami that triggered a nuclear disaster in Japan has also added impetus to renewables, and particularly solar power in the past quarter, according to the report. Both China and Japan have said they'll build more solar power plants in the wake of the disaster.

 

"The events in Japan will help move solar out of a niche technology corner and into the mainstream of power generation technologies," Ernst & Young Energy and Environmental Infrastructure Leader Ben Warren said in the statement.

 

China To Spend More On Water Conservancy

 

China's investment in water conservancy projects from 2011 to 2020 is expected to reach RMB 4 trillion ($615 billion), almost four times as much as that spent during the past 10 years, a senior water official said.

 

China's Minister of Water Resources Chen Lei said the country's water conservancy spending during the past five years reached RMB 700 billion ($107.9 billion), and about RMB 363 billion ($55.97 billion) for the 2001-2005 period.

 

The increased investment shows the government's determination to transform the nation's backward and inadequate water-related infrastructure, Chen said at a national work conference held in Changchun, capital city of northeast China's Jilin Province.

 

The investment will be used in projects including consolidating 15,900 small reservoirs by 2013, and another 2,721 large and medium-sized reservoirs by 2015, Chen said.

 

Chen added the increased investment is expected to strengthen the nation's water conservancy capacities in fighting droughts and floods, which in recent years have increasingly affected many regions across the nation.

 

E-car Buyers To 'Skip License-Plate Draw'

 

Beijingers who buy electric cars, or e-cars, could avoid having to take part in the license plate lottery, a spokesman for a Chinese automaker said.

 

The central government has already announced plans to introduce subsidies to encourage drivers to switch to clean energy models, which will likely be boosted by municipal authorities.

 

However, during a display at the Olympic Green as part of the 17th Beijing Science and Technology Week, Zhang Yuzhao of Beijing Automotive (BAIC) said e-car buyers will not have to rely on luck to get a registration.

 

"People with Beijing hukou (permanent residency) will not have to enter the (license) lottery," he told METRO while promoting his company's electric-powered Foton Midi.

 

"Owners of 100-percent e-cars are not subject to the (monthly) restriction policy."

 

At RMB 300,000 ($46,170), the Foton Midi is more than twice the price of the gasoline-powered model, although Zhang argued: "With the subsidies, consumers will pay only RMB 180,000 ($27,756.40). After running for 90,000 km, the owner saves so much money that it's like the car is free."

 

His calculation is based on the fact electricity is currently priced at 0.76 per kilowatt. However, other costs include regularly replacing the battery.

 

"I think the car is a little expensive," said Lu Xiaowei, a 26-year-old securities analyst who was browsing BAIC's booth. "Anyway, electric vehicles are the future of city transport."

 

Gao Mei, a 35-year-old senior high school teacher, added: "It's a bargain with governmental subsidies and the easy access to license plates, but I still have concerns of whether the related infrastructure (charging stations) will be put in place soon. Until that has happened, I won't buy one."

 

BYD, another Chinese car company, plans to launch its E6 model in the capital in July, with prices starting at RMB 300,000 ($46,254.90), according to a service worker at its Pengtian'ao branch.

 

"The company is still waiting on polices concerning governmental subsidies before sales," said Li, who gave only his surname. "Lots of people are calling every day, asking about prices and functions of the E6. As long as the restriction on gasoline car purchase exists, the car will definitely sell well."

 

Beijing is now building its first batch of three battery swap stations and 16 charging stations, which are slated for completion this year, China Automotive Review reported.

 

It is also applying to become the sixth pilot city to subsidize buyers of new energy vehicles, following in the steps of Shenzhen, Changchun, Hefei and Hangzhou.

 

 

 

CONSUMER

 

Coca-Cola Says Considers Listing In Shanghai

 

Coca-Cola Co., the world's largest soft-drink company, said it may explore a possible listing in Shanghai, joining other global firms in testing the waters for a China listing, along with its increasing presence there.

 

Coke has said it will commit $2 billion in investment into China and last October opened three new plants in Inner Mongolia.

 

"We are interested in exploring the opportunity of listing our stock on the Shanghai Stock Exchange," Geoff Walsh, public affairs and communications director for Asia Pacific of Coca-Cola, said in an email reply to Reuters.

 

"Obviously, we need to better understand the regulatory framework and listing requirements," Walsh said. "We continue to have positive discussions with Chinese government officials as we look at this opportunity."

 

Walsh's comments follow a report in the Hong Kong Economic Journal, saying Coca-Cola was studying a possible listing on the proposed international board on the Shanghai Stock Exchange.

 

HSBC, Unilever, and Standard Chartered Plc have said they want to list on the international board, which was originally slated to be launched in 2010.

 

The New York Stock Exchange is working with China to launch the country's international board that will allow foreign firms to list on the mainland, in a move seen as a crucial step in developing its capital markets.

 

Langham Focuses On Key China Properties

 

The Hong Kong-based hotelier Langham Hospitality Group (LHG) is strengthening expansion plans in China through its management expertise in the scheduled opening of 50 new hotels in the next five years, targeting the luxury to mid-end range, a top company executive said.

 

"China is a major market opportunity for Langham Hotels," Chief Executive Officer of LHG Brett Butcher said.

 

"Half of our business will be in China. Moving forward, China is really the core strength of our company's growth."

 

Butcher's remarks came as a result of his confidence in the robust Chinese economy. "The idea of China growing and being prosperous has just begun," he said.

 

At present, LHG manages four hotels in the country and expects to handle at least eight properties in the near future, after clinching management contracts from local partners. Also in the pipeline is the potential to manage a further 10 hotels, and LHG is in discussions with its local partners.

 

Besides China, LHG has established a presence in London, the United States and Australia.

 

LHG has three brands under its belt: The Langham Hotels, Langham Place Hotels, and Eaton Hotels. The Langham, considered a luxury brand, is placed selectively in the top 10 Chinese cities, to reflect its identity. Today, customers can find it in two locations in Shanghai and also in Dalian and Shenzhen.

 

Langham Place, a lifestyle brand, which has a scheduled opening at Beijing's International Airport, two in Guangzhou, and one in Ningbo, aims to be present in 30 to 40 cities across the country. Eaton, a mid-end brand that has the biggest number of hotels, can penetrate the second- and third-tier markets, Butcher said.

 

Coffee Maker Illy Banks On China

 

The coffee manufacturer and distributor Illycaffe SpA is banking on Chinese consumers' strong demand for coffee from Chinese consumers by opening boutique shops to gain brand recognition and bring in more sales.

 

Andrea Illy, chairman and chief executive officer, said the demand for high-end consumer goods and a developing coffee culture in China provide solid ground for the Italy-based company to expand its presence in the country.

 

The first Illy store is scheduled to open its door in Shanghai by the end of 2011 and will sell coffee machines, coffee products and tea from its sister company.

 

Plans are afoot to launch three to five new stores in 2012 in larger cities such as Beijing and Guangzhou where Illycaffe expects to have strong market penetration.

 

Coffee consumption has undergone a huge surge in China in recent years.

 

The consulting firm Euromonitor International said that revenue from the Chinese instant coffee sector reached RMB 5.1 billion ($786.4 million) last year.

 

Illycaffe estimates that the annual consumption of coffee in China has increased at a rate of 12 percent to 15 percent in past decade.

 

Revenue generated from the hospitality sector accounts for 75 percent of Illycaffe's total revenue in the Chinese market, according to the company. Illy said the annual growth rate for Illycaffe in China is about 30 percent and he estimated this rate would double in the next three years. The company has 16 sub-dealers in China and its network has covered more than 20 major cities.

 

Eyeing the large consumption base and increasing market demand, international coffee retailers and manufacturers are accelerating their expansion plans in the market.

 

The Australia-based Gloria Jeans said it plans to open 50 stores in China in the next three years and coffee retailer Starbucks plans to open 1,500 stores before 2015. As one of the largest coffee manufacturers in the world, Illycaffe has operated and managed a string of cafes around the world that have allowed customers to consume coffee in a variety of locations.

 

 

 

HEALTHCARE

 

TCM Company Applies For EU Product License

 

A traditional Chinese medicine company based in northwest China's Gansu province applied for a product license from the Swedish drug administration, becoming the first traditional Chinese medicine producer to apply for a license in a European Union (EU) country.

 

The Foci Pharmaceutical Company, based in the provincial capital of Lanzhou, is applying for authorization to produce a medication containing concentrated Chinese angelica, a type of Chinese herb, according to Sun Yu, the company's deputy general manager.

 

"We hope Foci can become a pioneer in the industry and lead the way for other traditional Chinese medicine companies to work with the EU," said Sun.

 

As the world's biggest herbal medicine market, the EU has recorded annual herbal medicine sales worth about 10 billion euros ($14.36 billion), more than 40 percent of the world's total.

 

The EU released the "Registration Process Order of Traditional Herbal Medicine" in March 2004, which stated that Chinese pharmaceutical companies would have to retreat from the EU market if their products weren't registered in EU countries by April 2011.

 

So far, no Chinese firm has succeeded in obtaining a product license from an EU country.

 

However, Foci is expecting to succeed in its attempt because the company's application is based on an extensive study of laws and regulations concerning drugs in EU countries, according to Zhu Zurong, the company's general manager.

 

If the company's medication is authorized in Sweden, it will be accepted by other EU countries as well, as the laws of EU nations are mutually recognizable, Zhu said.

 

China Sees Huge Market Potential In Smoking Cessation

 

Beijing resident Li Xinhua recently walked into a smoking cessation clinic in the city's Chaoyang Hospital. Compared to other outpatient clinics, which often have long lines waiting outside, the smoking cessation clinic was not very busy at all.

 

According to the 2011 China Tobacco Control Report, China has more than 300 million smokers. If all of these smokers began seeking professional help in their struggle to quit smoking, China could find itself with a burgeoning new market, according to Xiao Dan, director of the hospital's smoking cessation clinic.

 

Chaoyang Hospital is Beijing's first hospital to have its own smoking cessation clinic. The clinic's four full-time doctors treat about 1,000 patients annually.

 

According to Xiao, there were only one or two patients coming in each week when the clinic opened in 1996. The number of patients has increased gradually since then.

 

"Since May 1, when the national indoor smoking ban took effect, more and more smokers have decided to try to quit smoking," said Xiao.

 

Drug stores across China have seen smoking cessation aids fly off of their shelves since the ban was enacted.

 

"Nicotine patches are our most popular cessation aid," said a salesperson at a pharmacy in Beijing's Chaoyang district.

 

On taobao.com, China's largest online retailer, electronic cigarettes are some of the most popular smoking cessation products available. Prices for the e-cigarettes range from less than RMB 100 ($15.4) to RMB 500 ($77.1). More than 56,000 e-cigarettes have been sold through the site, according to sales figures.

 

Other popular smoking cessation aids include toothpaste, cigarette holders and Chinese medicines. However, since these products have not been scientifically proven to be effective and are not regulated by the government, smokers are advised not to buy them, Xiao said.

 

Foreign pharmaceutical companies are now seeing China as a major target for their latest smoking cessation medications.

 

The Chinese government included smoking bans for public places in its 12th Five-year Plan, and a national regulation banning indoor smoking took effect on May 1.

 

It is believed that these government initiatives will help to stimulate the growing smoking cessation market.

 

China's Biotech Revolution

 

With an improving quality of life that has resulted in larger paychecks and a more sophisticated understanding of health and wellness, China has been experiencing a massive biotech boom in recent years.

 

China's economic minister recently tapped biotech as one of seven key industries that the government intends to foster over the next 10 years. Zhou Zixue, chief economist of the Ministry of Industry and Information Technology, projects that biotech in China will grow at an annual rate of 24.1 percent between 2011 and 2015 before slowing down to a 21.3 percent growth rate in the following five years.

 

Sources told Reuters that in order to reach the goal China is considering investments of up to $1.5 trillion over the next five years in the industries of next-generation information technology, energy-saving, biotechnology and high-end equipment manufacturing.

 

Injection Of Cash Helps Healthcare

 

China will increase its funding for basic public healthcare services by two-thirds this year - to more than RMB 30 billion ($4.62 billion) - something that will improve coverage for vulnerable groups, including children, pregnant women and the elderly, the Ministry of Health announced.

 

The change means government funding for basic healthcare services will rise to RMB 25 ($3.85) per person this year from RMB 15 ($2.31) in 2010. The new funds will be used to enlarge beneficiary groups, improve effectiveness and expand available services, said Qin Huaijin, acting director of the ministry's department of maternal and child health and community healthcare.

 

From this year, basic medical services that used to only cover children under 3 will be provided to everyone under 6, making 48 million more children eligible. By the end of 2010, 81.5 percent of children under 3 had received services, including doctors' home visits to families with newborn babies, vaccinations and health check-ups, Qin said at a news conference.

 

Free healthcare services will also be provided to more pregnant women and people older than 65. In 2010, 84 percent of pregnant women and nearly half of people older than 65 were covered by the program, Qin added.

 

The program also helped 46.4 million people with hypertension, diabetes and serious mental illnesses in 2010. Plans for 2011 call for the inclusion of 19 million more patients with those problems, he said.

 

More funding will also be directed at grassroots medical institutions, which are now required to strengthen the monitoring of food safety, infectious diseases and public health emergencies.

 

Integrating migrant workers and their families into the program will also be a major challenge, but some places are already offering tentative solutions by allocating part of their funds for migrant workers, the ministry said.

 

Two years after China launched reforms of the national healthcare system in April 2009 with an investment of at least RMB 850 billion ($131.1 billion) over three years, the Ministry of Health noted that major implementation problems rested with lax administration of funding, poor accountability and inadequate services.

 

The central government provides part of the funding for free basic medical services, covering 80 percent of the costs for western regions, 60 percent for central areas, and between 10 and 50 percent for eastern regions, Liu Liqun, director of the community health division at the ministry said.

 

 

 

RECENT CHINA TRANSACTIONS

 

Buffett-Backed BYD Nears Shenzhen IPO

 

BYD Co. Ltd., the Warren Buffett-backed Chinese car maker, will kick off investor meetings for its domestic initial public offering, in which it plans to sell up to 79 million RMB-denominated shares.

 

The Chinese company, which already has shares listed in Hong Kong, didn't say how much it plans to raise in the IPO but said it will use the proceeds from the offering to fund three projects that require a total investment of RMB 5.38 billion ($828 million): a facility for lithium-battery production, a research-and-development center for car manufacturing, and the expansion of its auto unit.

 

The offering comes as analysts expect the sizzling growth of the Chinese auto sector to cool somewhat as government incentives for car purchases expire and rising oil prices curb demand. BYD, which is best known for its batteries and electric cars, is already growing at a much slower rate than the overall market, hampered by cutthroat competition and consumers' preference for international car brands.

 

Its decision to launch the IPO comes at a time when China's stock market has fallen sharply amid concerns about slowing growth and high inflation. The benchmark Shanghai Composite Index lost nearly 7% last month. BYD had pushed back its China listing plan by a year last July because of market volatility. The company didn't say why it has decided to sell shares now.

 

Analysts say the government's moves to curb bank lending is starting to hit non-government-backed companies, prompting some of them to seek capital elsewhere.

 

BYD said it plans to set the final price for its shares on June 20th, and investors can subscribe to the shares the following day. It expects to list on the Shenzhen Stock Exchange, the smaller of China's two exchanges, after completing the IPO as soon as possible. The new shares will account for 3.4% of the post-offering enlarged capital.

 

China's Vancl.com Plans U.S. IPO

 

Vancl.com, a Chinese online clothing retailer, plans to raise between US$750 million and US$1 billion in a U.S. initial public offering, people familiar with the situation said, joining a wave of Chinese Internet companies seeking to boost their profiles through a U.S. listing.

 

The companies have generated enough investor demand to raise concerns about a bubble in the stocks. Some have had strong debuts but rough stretches after. Online video company Youku.com Inc. in December posted the best first-day performance for a U.S. stock in five years, and while the share price is still above that first-day close, it's down about 38% from the peak it hit last month. Social-networking site Renren Inc., which raised $855 million in May, jumped 29% on their first trading day but have dropped 12% since.

 

This year, 13 Chinese companies have listed in U.S., raising a combined $1.87 billion; they include dating website Jiayuan.com International Ltd., which raised $81 million in May, and security software provider Qihoo 360 Technology Co., which raised $202 million in March.

 

Last year, 42 Chinese companies listed on the Nasdaq and New York stock exchanges, raising a total of US$4.1 billion, according to Dealogic. That's out of a total of 167 companies raising a combined $45.2 billion on the two exchanges, Dealogic said.

 

Vancl.com, launched in October 2007, sells men's and women's fashion, shoes and accessories.

 

Starbucks Buys Back Control Of Stores

 

The US-based coffee retailing giant Starbucks Coffee Company announced that it is to acquire full ownership of all its stores in China from joint venture partner, Maxim's Caterers Ltd.

 

In a press release, Starbucks said the agreement would allow it to boost profitability in China through direct control of more than half of Starbucks stores in Chongqing municipality and five other provinces, including Hainan and Sichuan.

 

As part of the agreement, Maxim's will have 100 percent control over Starbucks stores in Hong Kong and Macao. The exact consideration paid for this deal was not revealed.

 

Eyeing the huge profits generated in China's market, Starbucks has long been committed to gaining direct control over the stores.

 

Experts said full ownership will help Starbucks absorb more profits generated in China's market rather than the limited franchise fees it charges partners.

 

Starbucks revealed that it plans to have 1,500 Starbucks-branded stores in China by 2015.

 

Coffee consumption in China has boomed in recent years. Figures from the consultant Euromonitor International suggest that the coffee sales revenue in the country was RMB 5.22 billion ($805.08 million) in 2010.

 

 

 

OVERSEAS TRANSACTIONS

 

Prada IPO Said To Value Company At More Than European Rivals

 

Prada SpA is seeking to raise as much as $2.6 billion in a Hong Kong initial public offering this month that would give the maker of Miu Miu handbags a higher valuation than most of its European rivals.

 

The Milan-based company set a price range of HK$36.50 ($4.69) to HK$48 a share, two people with knowledge of the matter said, declining to be identified as the process is confidential. The IPO would raise $2 billion to $2.6 billion based on the range, the people said. Including an overallotment option, the offering would raise as much as $3 billion, according to Bloomberg calculations.

 

Prada may command a higher price in Hong Kong than it would have at home because of Asian demand for luxury goods. China is forecast to be the world's third-biggest market for luxury goods in five years, according to Bain & Co. The IPO values Prada at as much as 28 times 2011 profit as estimated by banks arranging the sale, one of the people said. Six comparable luxury-goods companies worldwide, including Burberry Group Plc, trade at an average 21.1 times forecast full-year earnings, according to Goldman Sachs Group Inc.

 

On average, Chinese consumer companies "have a higher valuation than consumer companies elsewhere," said Scilla Huang Sun, head of equities at Swiss & Global Asset Management in Zurich, who oversees about 4 billion Swiss francs ($4.8 billion). "But that's also due probably to their higher growth potential. Also, all these Chinese companies have almost 100 percent exposure to the Chinese market, whereas luxury companies including Prada have only a partial exposure."

 

Accenture Seeks To Expand In Middle East With Al Faisaliah Buy

 

Accenture (ACN) plans to buy a majority stake in Saudi Arabia's leading information technology services company, Al Faisaliah Business & Technology, in an effort to enhance its capabilities in that region.

 

While no financial details were disclosed, the Dublin-based management consulting, technology services and outsourcing company said the deal is slated to close within 90 days pending customary closing requirements.

 

"Strengthening our presence in Saudi Arabia is a priority for Accenture," said Omar Boulos, managing director of Accenture in the Middle East. "As always, our focus will be on providing our clients with the support they need to meet their business goals."

 

Once the transaction is completed, Accenture said it will leverage Al Faisaliah's enterprise architecture, systems implementation and technology consulting skills, with Accenture's management consulting and technology and outsourcing experience, to strengthen its position in the Middle East market.

 

Samsonite May Raise $1.5 Billion In Hong Kong

 

Samsonite International SA, the luggage maker backed by London-based CVC Capital Partners Ltd., may raise as much as HK$11.7 billion ($1.5 billion) in an initial public offering in Hong Kong, a sale document showed.

 

Samsonite and investors are offering 671.2 million shares in Hong Kong at HK$13.50 ($1.73) to HK$17.50 ($2.24) each, according to a term sheet obtained by Bloomberg News. The company plans to set a final price for the IPO on June 9 and start trading on June 16, the terms show.

 

The 101-year-old company will list shares in Hong Kong ahead of Coach Inc. and Prada SpA as consumer-goods makers seek to boost market share in China, where rising affluence is bolstering spending on foreign goods. Beauty-products maker L'Occitane International SA has jumped 37 percent since its Hong Kong IPO in April last year.

 

"Brand-name companies targeting mainland Chinese consumers have good growth prospects in the long term as China's economy continues to grow fast," said Nelson Yan, who helps oversee $90 million as investment manager at Mayfair Pacific Financial Group in Hong Kong. "Samsonite's valuation is relatively attractive compared to listed luxury goods makers."

 

The price range represents 17 to 22 times Samsonite's estimated 2011 earnings, as estimated by banks arranging the sale. Six luxury-goods companies listed in Asia, including L'Occitane and women's shoe retailer Belle International Holdings Ltd., trade at an average of 26.2 estimated 2011 earnings, according to a note from Goldman Sachs Group Inc.

 

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