How To Make Money In China

Something hit me between the eyes, as I quickly tried to adapt to life in the rapid-changing city of Shanghai.

No, I am not referring to the dense wall of smog that can, at times, be as choking as an out-of-control barbecue.

Nor am I referring to the unending barrage of street hawkers that peddle anything from purposeless strap-on wheelies for shoes; watches and bags of very dubious origins to “personal services” that are border-line dodgy.

Instead I am referring to an interesting app that is designed to help make life more interesting for newby visitors to Shanghai.

Brutal economics

The clever bit of computer code lists restaurants that are categorised by location, cuisine and popularity. It is not too dissimilar to the apps that many of us in Singapore already use to locate eateries.

What struck me, though, wasn’t the long list of restaurants available to food lovers in Shanghai. Nor was it the honesty of the reviews. Instead, it was the alarming number of restaurants that have been closed, for whatever reason.

It is, perhaps, an example of the brutality of free market economics that now operates in Shanghai and, maybe, in other parts of China too.

Investors, entrepreneurs and businesses, it seems, come to the city with high hopes of cashing in on the phenomenal growth that China’s second most populated city has to offer.

Broken dreams

But not all realise their dreams. From the roll call of eateries that have been forced to call it a day, it underlines, for us investors, the painful reality that there is nothing new in business – the old rules still apply.

The key to success is not always a unique selling proposition, though that obviously helps. Nor is it profitability, which is another useful attribute.

Instead, it is cash or the access to cash that matters. Cash is King, if a business is to successfully break into new markets such as China.

One standout China success story is Apple, whose US$140 billion cash pile provides a very comfortable cushion. Apple’s recent blowout quarter highlights the lucrative opportunities to those who are able to stay the course.

But Apple is not the only one.

Bread talks

BreadTalk (SGX: 5DA), which generates around a-third of its revenues in China, has around S$80 million in its war chest. CapitaLand (SGX: C31), which is one of Singapore’s most successful property developers, is another significant player in China. It has over S$2 billion in cash to develop its activities in the world’s second-largest economy.

Elsewhere, ComfortDelGro (SGX: C52), which operates a fleet of nearly 11,000 taxis in China, has around S$750 million in readies. Hongkong Land (SGX: H78) and fellow Jardine stablemate, Dairy Farm (SGX: D01), have S$1.7 billion and S$800 million respectively, to help realise their China dream.

China is a land that promises plenty. Unfortunately it is also a country that is likely to slow down. Of that there is little debate.

Hard or soft

Even China openly admits that its best days of growth are now behind it. The question is whether it will experience a gentle decline in growth or will it land with a bump.

A hard landing could mean that China is ready to tackle the problem of income inequality that is holding back consumers from driving the economy forward. A soft landing could imply a delaying of the inevitable.

Whatever happens, China will need to find a way to redistribute income from the cash-rich state to the cash-strapped poor.

But for companies with cash in their coffers, the footings that they lay today could be the first step to greater heights tomorrow.

A version of this article first appeared in Take Stock Singapore.

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