Tag Archives: financial

Emerging-Market Investors Bullish On China’s Middle Class

Rapid Growth Of Still-Nascent Middle Class Signals Opportunity For Investors And Family Offices In China

Many investors are banking on the prospects for Chinese middle class consumption

Many investors are banking on the prospects for Chinese middle class consumption

We’ve kept a close eye on China’s burgeoning middle class, which — despite its recent appearance on the world stage — already numbers in the hundreds of millions, presenting a vast and unique potential consumer base for companies selling everything from cars to jewelry, household goods to fashion. While the Chinese middle class is expected by many to play a major role in the global economic recovery, their buying (and saving) habits, investment strategies, and long-term financial goals by and large remain poorly understood. Today, the Wall Street Journal looks into emerging market investors who eschew the popular financial planning target customer — the wealthy or ultra-rich — to serve the Chinese middle class, and investors in the West who are banking on the continued growth of this consumer class.

In coming years, it seems inevitable that the increased consumption of China’s hundreds of millions of middle class investors will affect, in some way, investors and money managers in other countries. If that is indeed the case, it pays to read up on this subject now, when the market is just starting to be defined and more fully understood:

Encouraged by the steps the Chinese government has taken to boost consumption, some equity-fund managers are putting money into sectors related to domestic demand, such as retail, automobiles and financials.

Chinese industrialization in recent years has lifted the average income of millions, propelling them into the ranks of a swelling middle class some say could grow to be the largest in the world.

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New Yuan Bonds To Debut In Hong Kong

Yuan-Backed Sovereign Bonds Seen As Major Step In Building Market For Yuan As A Global Currency

Recent moves show that the internationalization of the yuan is a major priority for the Chinese government

Recent moves show that the internationalization of the yuan is a major priority for the Chinese government

The Shanghai Daily reports today that the Hong Kong SAR government is set to debut a new class of bonds denominated in the Chinese RMB, a move seen as a significant milestone in China’s ambitious plan to make its yuan a more global currency. While articles about the yuan’s potential status as a major currency have multiplied in the last year, particularly following People’s Bank of China director Zhou Xiaochuan’s call earlier this year for the US dollar to be replaced as the world’s de facto reserve currency, less-publicized moves such as China’s currency swap agreements with several countries, and an expansion in the issuance of yuan bonds from commercial banks, have largely flown under the media radar.

With the announcement of these new yuan-denominated bonds, it is clear that China hopes to make Hong Kong even more of an international financial hub. Although the territory has, for decades, been a major financial power in the region, with its more relaxed political and financial system, Hong Kong looks to be one of the most accessible areas for China to experiment with some of its more long-term financial projects. With the strong linkage between Hong Kong and Shanghai — sometimes playfully referred to as “Shangkong” — if this program is successful it may mean more fluid and regular investment in yuan bonds by foreign investors as well as a simultaneous boost to the yuan’s reputation abroad.

As the Shanghai Daily article explains, the Chinese Ministry of Finance will offer $878 million (6 billion yuan) worth of the bonds to retail and institutional investors beginning on September 28:

Peng Wensheng, head of China research at Barclays Capital, said that while the amount is not large, it is a significant development in the internationalization of the yuan and for the development of the Hong Kong bond market.

“The issue broke new ground in an effort to promote the domestic currency as an international currency,” Peng said yesterday.

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Chinese Tap An Inner Dynamic To Drive Growth – FT

The Chinese Consumer Looks To Be One Of The Biggest Engines Of Global Growth In The Long Term

China's inland consumer is rapidly becoming the country's engine of change and growth

China's inland consumer is rapidly becoming the country's engine of change and growth. Image © New York Times

The Financial Times has an excellent article today about the rise of the Chinese consumer, once a virtually non-existent market but now the darling of the world’s multinationals.The article details how the Chinese government is trying to get consumers to make the shift “from export-oriented growth to a greater reliance on inner dynamism,” much like the United States did in the 19th century. Going along with observations I have made before, much of China’s current growth and transition is comparable to the same events in the US roughly 100 years ago — from the problems with quality control and political issues, consumer reluctance to spend, and business “grey areas.” The article is well-researched and focused, and includes many valuable insights into the monumental task ahead for the Chinese government — transforming the spending habits of over a billion individuals, who have been accustomed to high savings rates (for cultural reasons as well as China’s lack of a social safety net) and a lingering distrust of less established domestic brands (particularly since the reforms of 1978-79).

But the key to this article is its surprising (and incredibly significant) observation is its figures about the exponential growth of the inland, third-tier city consumer. This consumer segment has only now come to light, and as we have discussed before, inland Chinese cities look to be the future; not only for individuals, but for businesses and marketers as well.

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