Brave New China 2009
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Transcript of Brave New China 2009
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
“Brave New China - 2009”- Future of the Chinese Consumer Economy
& Opportunities for Investments
Jan 2009
Jan 2009 Version 2.0 by KC Yoon
Presentation Outline
1. Review and Highlights of a Turbulent 2008o Summary and Key Trends in the Consumer Economyo Highlights of related Investment Activities
2. The Global Financial Crisis and Implications for Chinao Opportunity to Re-model the Chinese Economyo Can the Chinese Economy Successfully Transform?
3. Brave New China in 2009o Consensus Predictions for the Chinese Economyo Macro-Factors Driving the Future Consumer Economy
4. Where are the Investment Opportunities?• Key Consumer Trends • Investment Themes & Recommended Sector Focus
5. Conclusion
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Review and Highlights of a Turbulent 2008
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
People OpportunityTrend 1 : China’s Domestic Retail Sales Continues to Grow
Retail Sales Increase of 22% yoy in Oct 2008 ;
Wage growth may sustain spending
– rural income increase at faster rate of 11% in first
9 mths 2008
1H2008 domestic consumption
contrinuted 50.2% to economic
growth
Becoming increasingly important driver for economic growth
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
People Opportunity
Economic boom has seen growth
in domestic consumer brands
Trend 2: Chinese Domestic Consumer Brands are Building Own Strengths
Domestic brands ranked higher than foreign
brands in trust
Recent survey shows domestic brands’ strength in service; price
appears less valued by
consumers
Domestic Brands Becoming Significant Players
Superior Service Quality & Response
Customised to local tastes & habits
Long historical heritage
Established distribution network
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Trend 3: Internet an Integral Part of the Chinese Consumer Economy..
China already has world’s largest
internet population of over
260M
Steady growth in cyber economy
/online shopping supported by
boom in online payment services
Online clothing will be largest segment with
sales of RMB 17B in 2008
Strong Social network & interaction aspects of Chinese internet helps spread brand knowledge, market products
Jan 2009 Version 2.0 by KC Yoon
But Chinese Economy Ends 2008 Weaker Amidst Lower Inflation
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Experiencing Slowdown after 5 years of >10% annual growth- Real GDP 1st 3Qs of 2008 declined yoy to 9.9% from 11.9% in
2007past 5 years >10%
Experiencing Slowdown after 5 years of >10% annual growth- Real GDP 1st 3Qs of 2008 declined yoy to 9.9% from 11.9% in
2007past 5 years >10%
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Growth in Umemployment as Manufacturing slows – already seen in Guangdong
Retail sales continue to grow over 22% in Oct albeit slower than same period in 2007
Retail sales continue to grow over 22% in Oct albeit slower than same period in 2007
Cut-back in spending on “Big-ticket” items – property/cars
Impact on Growth of Consumer
Economy in 2009 which
now contributes
35% to China’s GDP
Impact on Growth of Consumer
Economy in 2009 which
now contributes
35% to China’s GDP
-ve-ve
+ve+ve
Jan 2009 Version 2.0 by KC Yoon
Investment Fund Raising Remain Active in 2008
To date, eight investments have been made from AEM3: a $50m investment for a majority stake in Beijing-based hot pot chain Xiabu Xiabu; a $103m investment, as part of a consortium, in Chinese company Ambow Education; a $65m investment, again as part of a consortium, in Chinese company 7 Days Inn Group;
Paul Fletcher, senior partner, Actis, said, 'We are delighted to have assembled such an outstanding group of investors who continue to recognise the opportunities for private equity investment across the emerging markets, despite the current economic climate.‘We believe that underlying economic growth remains resilient in many of the emerging markets. Much of this growth can be linked to businesses benefiting from consumer demand and increased investment in domestic infrastructure and Actis's investment strategy is tailored accordingly.
SignificantRMB-denominatd funds raised supplanting USD funds for
the 1st time
SignificantRMB-denominatd funds raised supplanting USD funds for
the 1st time
Asia (Including China) emerging funds continue to be successfully
raised- increasingly focused on the Chinese consumer economy
Asia (Including China) emerging funds continue to be successfully
raised- increasingly focused on the Chinese consumer economy
Emerging markets private equity investor Actis has closed its Actis Emerging Markets 3 fund on $2.9bn. Exceeding its original target of $2.5bn.
Emerging markets private equity investor Actis has closed its Actis Emerging Markets 3 fund on $2.9bn. Exceeding its original target of $2.5bn.
Jan 2009 Version 2.0 by KC Yoon
Internet+Media/Ent 9 (USD 420M)
Internet+Media/Ent 9 (USD 420M)
Investments Continue with Increasing Focus on the Consumer &related Industries/Services
Medical & Healthcare4 (USD 270M)
Medical & Healthcare4 (USD 270M)
Consumer Products/Retail2 (USD 680M)
Consumer Products/Retail2 (USD 680M)
Services (IT+Logistics) 9 (720M)
Services (IT+Logistics) 9 (720M)
Already close to 50% of deals and investments are related to the Consumer Economy..
Already close to 50% of deals and investments are related to the Consumer Economy..
Summary of deals tillQ3 2008
Jan 2009 Version 2.0 by KC Yoon
Fund Invested Company
Deal Size(USD M)
Remarks
Beijing Hotpot Actis $50 For over 50% stake in a hotpot chain with 60 stores in Beijing and Tianjin
Ambow Educational Co.
Actis $103 Chinese educational provider targeting middle school
WoWo Convenience Chain
ARC $10 Convenience retail chain in Chengdu
7-Day Inn Actis $65
Best Roast Chicken Shenzhen Venture
NA 2008 Top ten fast-food chain in China. Revenues over RMB 680M
老百姓大药房 EQT Partners
NA
Chamate Tea House Oak $23 60 stores across Bejing, Shanghai, Hangzhou,Nanjing
Jiaguang Mart Co. Carrefour RMB40M Acquisition of hypermarket chain
Xi'an Aijia Commerce Co
China Resources
RMB600M Acquisition of supermarket chain
Metersbowen IPO Raised RMB1.38B
Casual wear apparel chain with over 2000 stores and overseas outlets
Little Lamb Hotpot IPO Raised HKD780M
Well-known nation-wide hotpot chain invested by 3i
Fujian New Hua Du Supermart
IPO Raised HKD2.55B
Leading supermart in Fujian province
Recent Transactions in the Consumer Sector
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Global Financial Crisis and Implications for China
Jan 2009 Version 2.0 by KC Yoon
“ A Remedy Better than Painkillers”
\The financial crisis is real and the damage severe, so the government cannot shirk its responsibility to stabilize the economy. Many focus on what measures the government should take, or which policies to roll out, to ease the pain. However, from what we know about the cause of the crisis, the palliative effect of government policies will not boost productivity without conforming to business trends. Moreover, ingesting too many painkillers would work against economic rebalancing. In this sense, the Chinese government and private sector must make a distinction between short- and long-term tactics. Short-term measures can buy time needed to address long-term concerns. But real opportunity can be found only in the quest for solutions to fundamental ills. For policymakers, the best opportunity afforded by the crisis is to rapidly change the development model. China cannot continue relying on exports. Since the beginning of the 21st century, a clear objective for the government has been to transform the growth model. “Sound and fast development” was mentioned in a report of the 17th Communist Party Congress….. However, meaningful transformation has been elusive. Although encouraging change in good times can be less disruptive and less painful than in bad times, the steps taken before the crisis grew to its current proportions were half-hearted. Urgency was lacking. Now in hard times, pressure for change is there, but action is delayed for fear of pain. Even though the world economy is in recession and the Chinese economy is suffering the consequences of over-reliance on exports, inertia keeps the old model afloat. Now, policymakers have to recognize that economic transformation is an opportunity as well as their only choice. The price paid for moving slowly has already been high enough. We cannot afford to take additional chances. If pro-active steps toward transformation are not forthcoming, changes made in the future under pressure will be more painful and costly. Industry leaders should seek opportunities for growth. Enterprises cannot rely on policy favors for survival, so when business growth is flat or falling, it’s time to gather strength for future growth. Currently, meeting growth targets and easing pain while costs slide can foster excuses for keeping the status quo. However, survival of the fittest is an iron law of business….Clearly, China’s rebalancing will depend on the efforts of industries to move up the value chain, bring innovation to the services industry, and expand the domestic market. Seizing the opportunity to rebalance is better than waiting for government handouts. Making money in 2009 will not be as easy as in past years. But seeds for future growth can be sown with brains and brawn. Opportunities for development are waiting for those who embrace the future
Jan 2009 Version 2.0 by KC Yoon
Crisis Creates Opportunity to Drive Economic Reforms
Govt RMB 4 trillionStimulus Package
-RMB 1.8tr infrastructure + power-RMB 1 tr earthquake reconstruction- RMB 1.2 tr improve rural life, social welfare, health & education
Govt RMB 4 trillionStimulus Package
-RMB 1.8tr infrastructure + power-RMB 1 tr earthquake reconstruction- RMB 1.2 tr improve rural life, social welfare, health & education
Export Growth ModelExport Growth ModelDomestic Consumption
Model
Domestic ConsumptionModel
Problems Created by Financial Crisis
Problems Created by Financial Crisis
Lost Jobs!Factory layoffs due to drop in
exports
Low Consumer Confidence!Fear of income loss
Slowed Growth!EXport was key growth driver
Conditions Required to Drive Towards Consumer Economy
Conditions Required to Drive Towards Consumer Economy
Create Jobs!Infrastructure Spending – roads,
govt services, utilities
Consumers Release Savings to Spend!
Govt create safety net
Drive Growth!Domestic Consumption becomes
growth driver
Jan 2009 Version 2.0 by KC Yoon
Will the Transformation be Successful? (1)
Factors Hindering Smooth Transition
Factors Hindering Smooth Transition
Factors Supporting Transition to Domestic Consumption Model
Factors Supporting Transition to Domestic Consumption Model
Job Creation Insufficient !
• Chinese Government has accumulated large fiscal reserves to spend on infrastructure and will continue to drive the urbanization strategy
Urbanization drives MASSIVE infrastructure needs + “GREEN” revolution creates new industry sector =
JOBS!
• Already seeing mass layoffs from “export-factories” and workers returning to rural cities without jobs
1 billion city
dwellers!
1 billion city
dwellers!
Over 200 cities > 1M
Over 200 cities > 1M
By 2025
5M km of roads
170 Mass Transits
40M sq ft office space
50,000 buildingsCities + city-
living naturally
creates strong conditions for consumption
Cities + city-living
naturally creates strong conditions for consumption
Jan 2009 Version 2.0 by KC Yoon
Will the Transformation be Successful? (2)
Factors Hindering Smooth Transition
Factors Hindering Smooth Transition
Factors Supporting Transition to Domestic Consumption Model
Factors Supporting Transition to Domestic Consumption Model
Consumer Confidence Remains Low!
• McKinsey “Source of growth of China’s wealth comes from private ownership rather than state”- strong entrepreneur culture will make Chinese manufacturers adapt• Change business model from ‘export” to domestic sales – many successful cases
Private Entreprenuership drives change
• Depressed stock and property markets continue to dampen consumer confidence
Chinese Financial System and Institutions remain highly liquid with strong cash
reserves- Banks also pushing loans to SMEsd and individuals to encourage spending and business investments
Chinese Financial System and Institutions remain highly liquid with strong cash
reserves- Banks also pushing loans to SMEsd and individuals to encourage spending and business investments
Plus
Private enterprises will become
new engine of growth as
businesses adapt to change
Private enterprises will become
new engine of growth as
businesses adapt to change
Proactive Government actions in all areas
• Social Safety Net – Government action to provide low-cost housing to rural residents; implementation of social insurance, improving healthcare• Stabilising Property Market – recent removal and easing of property purchase downpayment quantum and taxes• Lowering of bank interest rates• Stabilising stock market through use of pension fund
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Brave New China in 2009
Jan 2009 Version 2.0 by KC Yoon
Combination of Government fiscal spending & Private enterprise reform
• World Bank – China’s growth will be 7.5% in2009
• Merril Lynch- China is “favourite” emerging market for 2009 accounting for 80% of world’s growth; 2H recovery in GDP >8%
• UBS – China’s growth will maintain at 7.5% recovering to 8% by 2010
• Morgan Stanley- “Getting worse before recovering” with biggest swing factor being real estate recovery
Conservative Scenario Shows Recovery in 2H 2009 with GDP Growth at 7-8%
“soft” landing in 2009 with economy
bottoming in 1H 2009
“soft” landing in 2009 with economy
bottoming in 1H 2009
Continuation of urbanization as gap
closes between coastal & inner cities
Continuation of urbanization as gap
closes between coastal & inner cities
Improving social welfare for rural
residents as Govt spending takes effect
Improving social welfare for rural
residents as Govt spending takes effect
Property & stock market stabilises through low interest environment plus govt measures
Property & stock market stabilises through low interest environment plus govt measures
Private enterprises drive business investments as production cost
stabilises
Private enterprises drive business investments as production cost
stabilises
Domestic Analysts PredictionsDomestic Analysts Predictions
Foreign Analysts PredictionsForeign Analysts Predictions
• Chinese Academy Science- 70% confidence for 9% GDP growth..
• Leading Chinese Broker – Opportunity for domestic re-structuring..
• Renmin University- Consumer confidence is key..with Govt measures playing a key role..
• State Council Research – Watch 3 factors:upgrade consumpton structure; maintain export growth and ease restrictions for doemstic property investments
• Ministry Commerce- Exports will continue to grow in real terms..
Jan 2009 Version 2.0 by KC Yoon
Consumer/Retail Growth will Continue Growth between 13-18%
\ Mark Mobius, the Singapore-based executive chairman of Templeton Asset Management Ltd.. – ““aggressively” buying consumer stocks in emerging markets including China. Mobius, whose firm oversaw more than $24 billion in emerging-market stocks on Sept. 30, said growth in per-capita income is fueling a consumer “boom” in those countries. Buy Consumer Stocks Investors should favor consumer stocks over commodity producers as “emerging-market economic growth shifts from external to domestic demand,”
Mark Mobius, the Singapore-based executive chairman of Templeton Asset Management Ltd.. – ““aggressively” buying consumer stocks in emerging markets including China. Mobius, whose firm oversaw more than $24 billion in emerging-market stocks on Sept. 30, said growth in per-capita income is fueling a consumer “boom” in those countries. Buy Consumer Stocks Investors should favor consumer stocks over commodity producers as “emerging-market economic growth shifts from external to domestic demand,”
“Unmet” Needs from Rising Chinese
Consumers
“Unmet” Needs from Rising Chinese
Consumers
McKinsey “Urban Middle Class Commands
RMB 500 M in consumer spending”
McKinsey “Urban Middle Class Commands
RMB 500 M in consumer spending”
Emerging consumers from second/third tier
cities- white collar/industrial
workers
Emerging consumers from second/third tier
cities- white collar/industrial
workers
“First 3 days of retail sales in 2009
increased 13% yoy” Above expectations
“First 3 days of retail sales in 2009
increased 13% yoy” Above expectations
Jan 2009 Version 2.0 by KC Yoon
Macro-Factors Driving China’s Future Consumer Economy (1)
3 + 1
Growth of Chinese Middle-Class
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Urbanization and Growth of Cities
Growth and Impact of the Internet
Growth and Impact of the Internet
> 200 Cities with >1M residents
By 2015, >300M lower-middle class;
100M luxury consumers
NOW >300M users; >RMB 120B online
consumer sales
Recent RMB 4 trillion stimulus –
focus on infrastructure,
education, healthcare, social
services
Recent RMB 4 trillion stimulus –
focus on infrastructure,
education, healthcare, social
services
Jan 2009 Version 2.0 by KC Yoon
3+1 Macro-Factors - Urbanization
Urbanization will create consumer demands typical in city-living
Urbanization will create consumer demands typical in city-living
Demand for Housing-related products and services
Demand for Housing-related products and services
Over 110 high-consumer potential cities with 34% of GDP
Over 110 high-consumer potential cities with 34% of GDP
Demand for lifestyle & convenient services
Demand for lifestyle & convenient services
• Over 50,000 New Buildings- Demand for real estate agencies, renovation services, cleaning & maintenance services…
• Over 400 large cities – Demand for convenience stores, entertainment facilities, supermarkets, shopping malls, food services…
Demand for better healthcareDemand for better healthcare
Jan 2009 Version 2.0 by KC Yoon
3+1 Macro-Factors - Internet
The Internet will be an intergral part of the consumer economy
The Internet will be an intergral part of the consumer economy
Most widespread media- access middle-class consumers
Most widespread media- access middle-class consumers
Highest global participation rate & important social influencer
Highest global participation rate & important social influencer
Growth of B2C Growth of B2C
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Where Are Investment Opportunities?
Jan 2009 Version 2.0 by KC Yoon
Key Consumer Trends
3 + 1
Growth of Chinese Middle-Class
Growth of Chinese Middle-Class
Urbanization and Growth of Cities
Urbanization and Growth of Cities
Growth and Impact of the Internet
Growth and Impact of the Internet
Govt StimulusGovt Stimulus
“City-Living” Consumer Services
“City-Living” Consumer Services
Affordable Luxury for the Young Affluent
Affordable Luxury for the Young Affluent
“Mass Market” + “Good Enough” Products
“Mass Market” + “Good Enough” Products
Online Consumer BrandsOnline Consumer Brands
“Knowledge” Services“Knowledge” Services
“Health”+ “Well-being” Services
“Health”+ “Well-being” Services
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 1 : Emerging Niche Brands + Urban Inner City Retail & Services + Direct-to-Consumer Services (I)
Right Strategy=WinningFund
China's TV shopping industry scale was about CNY10.5 billion in 2007, of which the TV direct-sale and shopping-focus channels accounted for 59.1% and 40.9% respectively. With the
standardization and support of national policies, a TV shopping industry chain composed of logistics, information flow and capital flow has been formed. About 10% of TV shopping audiences in key cities fulfilled a purchase …
Sales of China’s TV Shopping will reach RMB 20billion in 2008
Emerging Brands- Chinese Hairpin Brand strong recognition in GZ differentiated by unique service-value offered to
customers , strong in 2nd/3rd tier cities
TV Shopping ServicesTV Shopping ServicesNiche “Luxury” Urban RetailerNiche “Luxury” Urban Retailer
Jewellry Retail valued at USD15 Billion and is fragmented
Affordable “Luxury” + “Mass Market”
Affordable “Luxury” + “Mass Market”
Success of ZARA shows ready market for
“affordable” luxury targetted at the mass market; potential market for discount retailers
Success of ZARA shows ready market for
“affordable” luxury targetted at the mass market; potential market for discount retailers
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 1 : Emerging Niche Brands + Urban Inner City Retail & Services + Direct-to-Consumer Services (II)
Fast-Food ServicesFast-Food Services
Food Service Industry is recording significant growth and with increasing
urbanization, sector expected to continue strong growth..
Food Service Industry is recording significant growth and with increasing
urbanization, sector expected to continue strong growth..
Local fast-food chain “Kungfu” recorded sales of
RMB1 B with 300 stores..planning to open
100-150 in 2009
YUM China has built a successful franchise of 2600 stores..and plans to open 500
outlets across China…including 3/4th tier cities
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 1 : Emerging Niche Brands + Urban Inner City Retail & Services + Direct-to-Consumer Services (III)
Online Consumer ServicesOnline Consumer Services
• Online apparel market already reached over USD2 Billion – Leading players VANCL and PPG both received funding from investors being niche online players and are able to compete effectively in the market..
• Grow C2C Business - Both Alibaba and Baidu have recently announced significant investments to grow their C2C ecommerce businesses..
More Chinese are using the internet as a source for ordering goods and services. Research institute Data Centre of China Internet, said in a report that China’s Internet users spent 256.1 billion yuan (37.5 billion dollars) in the first six months of the year, up 58.2 percent from the same period in 2007…led by a younger generation that is willing to buy on credit and shop online .
Nikkei reported that around 100 Japanese companies are planning to participate in an online shopping mall to be set up on the Chinese web next month. The mall will be the biggest of its kind in China, with initially 20,000 different Japanese products listed, targeting 1st year sales of $45 million…
Nikkei reported that around 100 Japanese companies are planning to participate in an online shopping mall to be set up on the Chinese web next month. The mall will be the biggest of its kind in China, with initially 20,000 different Japanese products listed, targeting 1st year sales of $45 million…
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 2 : Branded Consumer Products + Supporting Services in Evolving Retail Value Chain (I)
Leading domestic niche brands(wine, cosmetics) eg.
Daobao SOD recently acquired by P&G for USD300M
Leading Niche Domestic Brands at Major Retailers
Leading Niche Domestic Brands at Major Retailers
Major retailers like Hypermarkets offer channels to quickly help
domestic products build brand and reach a wider market
Major retailers like Hypermarkets offer channels to quickly help
domestic products build brand and reach a wider market
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 2 : Branded Consumer Products + Supporting Services in Evolving Retail Value Chain (II)
Supporting Services & ChannelsSupporting Services & ChannelsAs major retailers outsource support services, potentially will see growth of logistics, warehousing, distribution
services;
As major retailers outsource support services, potentially will see growth of logistics, warehousing, distribution
services;
As manufacturers search for retail channels will drive
growth of new channelseg. Teleshopping, shopping
malls + management services
As manufacturers search for retail channels will drive
growth of new channelseg. Teleshopping, shopping
malls + management services
Recent crisis will see further “Outsourcing” of support services to lower
cost and leverage on scale
Jan 2009 Version 2.0 by KC Yoon
Investment Theme 3 : Education and Healthcare Services
Education Services Education Services
Tremendous growth opportunity in China’s education sector as household disposal income increases..still significantly below
HK/Taiwan..Online Education also represents new opportunities
Tremendous growth opportunity in China’s education sector as household disposal income increases..still significantly below
HK/Taiwan..Online Education also represents new opportunities
Healthcare Services Healthcare Services
Key Findings -- Total healthcare spending in China is expected to grow at a CAGR of 11% between 2007 and 2012; -- Around 118 Million people are expected to be above 65 years of age in China by 2012, thereby increasing the prevalence of several chronic diseases; -- Middle class projected to have 160 Million people by 2012, reflecting a higher spending on healthcare and opportunities for healthcare companies;
Key Findings -- Total healthcare spending in China is expected to grow at a CAGR of 11% between 2007 and 2012; -- Around 118 Million people are expected to be above 65 years of age in China by 2012, thereby increasing the prevalence of several chronic diseases; -- Middle class projected to have 160 Million people by 2012, reflecting a higher spending on healthcare and opportunities for healthcare companies;
Leverging on the Chinese Govt’s recent stimulus
focusing on improving the social welfare system in education & healthcare
Jan 2009 Version 2.0 by KC Yoon
Recommended Sector Focus
Focus on the following core sectors within the retail/consumer space
• Consumer serviceso Food services- Fast food, restaurant chainso Beauty and lifestyle services
• Branded affordable “luxury” consumer goodso Fashion apparel brands – Female focused brandso Cosmeticso Branded Jewellery, Watcheso Liquor, Wine and Beer
• Supporting Services for Retailerso Logistics & Distribution Services
• Internet-basedo B to C/C to C ecommerce services
• Education and Healthcare Services
Jan 2009 Version 2.0 by KC YoonPROPRIETARY & CONFIDENTIAL
Conclusion
Jan 2009 Version 2.0 by KC Yoon
“ Opening of Services Sector Represents the Next 30 years of China’s Economic Reform ”
\…the period of 1978 to 2008 has been heralded with fanfare in China as “three decades of reform and opening.” This past year was spent remembering the accomplishments of those decades, culminating with a commemoration of the Third Plenum of the 11th Party Congress which, in December 1978, officially marked the beginning of the reform era…. President Hu Jintao spoke…whose central message was “press forward with reform and opening.” By insisting that reform must continue “without wavering, without slackening and without detours,” a fresh starting point for China’s future course was clearly set. ….. At the commemoration, President Hu repeated word-for-word the concluding remarks made at the 17th National Congress of the Communist Party in October 2007: “The reform and opening-up policies are in accord with both party consensus and the public will, and in compliance with the trends of the times. The direction and path are completely correct, the results and achievements cannot be denied, and any halt or retreat is unacceptable.”... Under present circumstances, then, our most pressing task is to turn a new corner for reform to maintain its momentum as well as economic growth and social stability. …We believe the new driver of growth would be to open up the services industry market in China. When per capita GDP reached around US$ 3,000 in the United States, Japan, South Korea and Taiwan, the services industry became a motor for growth. China’s GDP per capita is very likely to reach US$ 3,000 in 2008. This is an auspicious moment for developing China’s services industry, which can boost consumption and stimulate investment. The potential benefits are numerous. Such an industry can be a catalyst for transforming the economic structure, ease the pain of the economic downturn abroad and in China, reduce the domestic economy’s reliance on the property and auto sectors, create new jobs, relieve the strain on the environment, and improve the quality of life. …a services industry, which has been called a “third industry” in China. In the early days of China’s reform period, this sector covered wholesale, retail, transportation, warehousing and the property sector. More recently, it has expanded to include financial services, information technology and the media, arts and entertainment, education, health care, business services and other branches of the economy. The services industry has made great strides over the past 30 years, but its share in the economy has not grown as quickly as the so-called “second industry,” which includes mining, manufacturing and construction. Growth has been impeded by lagging reforms in a number of key sectors. The economy’s current slowdown may provide the right opportunity for the services industry to take off – a timely and necessary development.
Jan 2009 Version 2.0 by KC Yoon
Selected References
• McKinsey – Source of China’s Wealth (Dec 2008)• McKinsey Global Institute- Preparing for Chinese Urban Billion (Mar 2008)• McKinsey Global Institute- Chinese Middle Class (2006)• UBS - Asia Research (Dec 2008) • Morgan Stanley – China Research Report (Dec 2008)• Merril Lynch - Emerging Markets Research (Dec 2008)• Morgan Stanley – China Internet Report Q3• Merril Lynch – Asia Education Report (2008)• US Embassy – China’s 1.3 Billion Consumers –Food Service (May 2008)• Trend – Get Rich is Glorious (Sept 2008)• YUM – China Strategy (Sept 2008)• KPMG- China Luxury Brand Report (2008)• Danwei- Chinese Retail Economy (Dec 2008)• TrendSpotting – Handbook of Online China (Aug 2008)• IBM Research – Winning China’s Mass Market (2008)• Economist Intelligence Unit – New Strategies for Private Equity Markets (2008)• CaiJing Magazine• Beijing Review- Economic Outlook for 2009• www.ifrmarketintelligence.com – Private Equity after the Crunch (2008)• www.cicdata.com- The Chinese IWOM Landscape (2008)• www.chinaventurenews.com• www.zero2ipo.com• www.cvca.com