Investors Looking To Profit From China’ Economic Growth Need Creativity, Cultural Insight, Curiosity
Many foreign investors looking to get involved with investment in China look at trends described by (primarily) western commentators or businesspeople, who generally describe trends over the last 10 years along with their strategies for making money in the Mainland market. While former success can provide good insight into the particularities of Chinese business, there is no indication that past performance will correlate with future payoffs. To see where future opportunities will lie in China, we should, instead, look at what the Chinese are buying, and how they’re investing. It is, after all, their country, and who understands it better than them?
So what is China buying? As the financial crunch wears on — but the economy starts to get back on its feet — certain commodity classes have had a corresponding drop in demand. Construction supplies spring to mind here. Yet construction supplies, copper and steel, generally comprise only a small part of a good China investment strategy. Like Chinese investors, diversification is key. Here are some bright investment spots, or areas that I personally feel will see further growth as the economy hots up again:
1. Domestic Private Equity
As LBO Wire wrote this week, although we have seen few PE exits in China over the last 6 or so months, Chinese private equity firms should hold up pretty well during this financial slowdown and be able to snatch up competitors on the other end of the crisis, since “private equity deals in China don’t rely as much on debt anyhow. Also, the boundary between venture capital and private equity is more blurred than in the U.S., meaning the universe of potential buyers is bigger.”
2. The Leisure & Service Industries
Western and Chinese investors alike are putting more focus on the growing leisure market in China. Manas Chakravarty, in his review of Jim Rogers’s new book, writes, “As the Chinese grow richer, they will spend more on leisure. So tourism will be a good sector to invest in and hotels should be a good bet. That’s true not just for domestic tourists in China, but also for the hospitality industry in neighbouring countries, as a horde of Chinese sightseers descend on them. Of course, they will need aeroplanes to travel in, so add a couple of Chinese airline companies to your portfolio. One-and-a-half-billion Chinese will need to eat, so agriculture should be a good bet. Invest in everything agricultural, from animal feed companies to those growing seeds, to juice companies. Rogers also throws in a peanut snack producer, Oriental Food (Holdings) Ltd, for good measure.
3. Domestic Pride