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Three Views Of China

Flag_of_the_People's_Republic_of_China.svgIt would seem that the markets may have been giving China the cold shoulder of late. The country is no longer seen as fast-growing economy that could work miracles by delivering double-digit economic expansion. Its economic growth is expected to slow to around 7.7%, which is some way short of its 12% growth rate in 2010.

But not only has its economic growth come off the boil, the stock market has done likewise. The Shanghai Stock Exchange Composite Index is down from a 2007 peak of 6,092 points to 2,148 points as the froth is blown off the stock-market hype.

Interestingly though, domestic consumption in the first three months of the year was the biggest driver of economic activity in China. It accounted for more than half of the country’s economic growth. So it would appear that China’s strategy of rebalancing its economy away from being export-led to one that will eventually be driven by consumers is showing early signs of success.

The move towards consumerism could even accelerate as China pushes ahead with its urbanisation plan. According to the Business Times, China is set to move 250 million rural residents into newly constructed towns and cities over the next 12 years.

Evidence of robust consumer activity China was recently provided by food processor Super Group (SGX: S10). The company, which makes branded consumer goods and food ingredients, highlighted China as a bright spot. It flagged up a 9% growth in its East Asia branded consumer goods sales thanks to demand in China for coffee and cereal. It also emphasised demand in China for non-dairy creamers for its 33% jump in food ingredients revenues.

Dukang Distillers Holdings (SGX: GJ8), which makes Chinese baijiu, posted a 64% jump in third-quarter profits last month. The company said China’s baijiu, whilst a mature product, grew 30% per year between 2007 and 2011. It added that Henan, which is the most populated province in China, is also the largest consumer of Baijiu. What’s more the baijiu market in Henan is currently worth an estimated RMB35 billion or S$7 billion a year.

And finally, CapitaRetail China Trust (SGX: AU8U) reported a 4.6% increase in first-quarter property income. The Real Estate Investment Trust said tenant sales growth came in at 11%, whilst 10.6% more shoppers passed through its malls. It expects the Chinese government to continue to drive economic growth through greater urbanisation, higher wages and stimulating consumption through credit.

Personally, I find the prospect of one billion Chinese consumers armed with credit and store cards a little worrying. But that’s an article for another day.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo owns shares in CapitaRetail China Trust.