“Buy What China Buys”: 3 Investment Classes To Watch Now

Investors Looking To Profit From China’ Economic Growth Need Creativity, Cultural Insight, Curiosity

Knowing when to invest in China, and what to invest in, takes creativity, keen worldview, and a knowledge of Chinese culture and trends.  © Wang Guangyi

Knowing when to invest in China, and what to invest in, takes creativity, keen worldview, and a knowledge of Chinese culture and trends. © Wang Guangyi

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.

And once they have filled their bellies, won’t they require health, education, housing, the Internet, mobile phones, retail stores, fashion? Also, once they move up the technology chain, their hi-tech and aerospace companies are bound to benefit.”

3. Domestic Pride

The growing pride that wealthier Chinese have in their economy and their culture should not be ignored by investors. For decades, Chinese consumers and investors have brushed off their own culture, preferring “westernization” as denoting sophistication and education. While this is still, by and large, the case — wealthy consumers still prefer western luxury products, automobiles, etc — in some areas this is changing and changing fast.
Wealthy Chinese are increasingly traveling the world to buy domestic artwork, both ancient and now contemporary art at a much higher rate. In recent auctions, mainland Chinese have accounted for the majority of auction bidding, not only at the big sotheby’s and christie’s auctions, but even at the auction houses that sell contemporary Chinese art on a regular basis (Guardian, Poly, Ravenal to name just a few). In all of these cases, the key links are scarcity and the national pride attached to these artworks. These two things drive the purchase first, followed by their prudence as an investment.
I think this will continue, and will most likely continue to drive purchases for quite a while. As contemporary Chinese artists gain even more visibility in their home country, their art works will continue to grow as status symbols in a corresponding manner. Also, as the financial crisis has taken a bite out of asset prices, Chinese artwork has become more affordable for wealthy individuals, and more accessible than western art (since Chinese art is already right there in China). I will expect to see growing domestic sales in contemporary art as well as antiques in the near and long-term, continually driven by the scarcity factor — of course antiques are scarce, but we’ve seen scarcity becoming more and more of an issue with top historical contemporary Chinese artists in recent years, as demand grows and top artists produce fewer new works. And, as I said, if the Chinese themselves are buying it, maybe non-Chinese investors should consider it a sign that other non-Chinese investors will catch on later. We have written on this before, but the easiest way to invest in an emerging economy is through cultural products — which hold and grow value and are easy to ship out of the country, hang on a wall, and enjoy for years.

4 responses to ““Buy What China Buys”: 3 Investment Classes To Watch Now

  1. Great info-Thanks!

  2. That is interesting. I didn’t know that there was so much focus on the service industries, especially in these times!

  3. Pingback: Put Your Money Where The Art Is « ChinaLuxCultureBiz

  4. Pingback: Fund Managers Continuing to Invest In China « ChinaLuxCultureBiz

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