As the American consumer frets about job security and stagnating wages, those in the growing middle classes of the developing world are just starting to get a taste of a western shopping experience. With more than a billion residents, China is quickly shifting from a manufacturing hotspot to the new bastion of consumerism. While there is much debate over how long the Great Chinese Building Binge can last, one thing is sure, its new minted consumers have plenty of room to run.
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Approximately 70% of all Chinese citizens will live in or near cities by 2015. This is a dramatic leap upwards from the 43% of urban dwellers recorded in 2006. This urbanization is helping fuel the growing ranks of wealthy Chinese. Recent worker strikes this past spring have also resulted in higher wages. Total household wealth is estimated to more than double to nearly $35 trillion by 2015. The nation will surpass Japan to become the country with the second highest household wealth in the world.
These increasingly wealthy shoppers are evolving in the way they shop. For the new Chinese consumer shopping is becoming entertainment. Malls and hypermarkets like Wal-Mart (NYSE:WMT) have become fun destinations. Analysts at McKinsey & Co. found that 73% of Chinese consumers viewed shopping as a leisure activity, nearly 45% identified it as one of their favorite pursuits, and just over half said it was one of the best ways of having quality time with family.
There is a direct correlation of the desire to buy more and better products and rising incomes in China. Roughly 75% of all urban households have traded up in at least one product category as their income levels rose. In addition, credit card balances in China rose more than 17% in 2009. The Chinese consumer is getting more comfortable with holding debt to a certain degree.
Ringing the Register
With the Beijing government handing subsidies on everything from cars to new appliances, China's consumer culture will continue to grow. This expansion offers investors a great long term theme for a portfolio addition. The broad-based Global X China Consumer ETF (Nasdaq:CHIQ) offers a quick and easy way to the play the theme. The fund follows 40 Chinese firms across various sectors in the consumer space. Investors can also use the Emerging Global Shares Dow Jones Emerging Consumer ETF (Nasdaq:ECON) to play not only China's growing middle class, but Brazil's, India's, etc. Additionally, there are other ways to play the premise.
Spending by Chinese travelers is estimated to grow to more than $110 billion by 2015, up from $43 billion. Most of that spending will go to other Asian economies with Hong Kong getting the lion's share. According to the Hong Kong Retail Management Association, sales gained as much as 30% from a year ago during China's Golden Week holiday festival. As China's economy grows, so will Hong Kong's. The iShares MSCI Hong Kong Index (NYSE:EWH) is the best way to benefit from this relationship. Booking all those flights, travel site Ctrip.com (Nasdaq:CTRP) will also benefit.
The luxury sector in China is growing at a brisk pace. Handbag maker Coach (NYSE:COH) has been quick to capitalize on this trend. The company expects sales from China to double by 2013 and has opened 13 new stores in the nation this year and has increased its square footage by 50%.
Finally, as more Chinese consumers move to more urban areas, they will crave more creature comforts. Blender, toaster oven and appliance manufacturer Deer Consumer Products (Nasdaq:DEER) is a perfect way to play the growth in demand for microwave ovens and juicers.
The Bottom Line
With America's consumers suffering along with the daily ebb and flow of the economy, China's consumer is just getting started. With the increases in urbanization and rising wages, the Chinese shopper will be a force to reckon with in the upcoming years. Investors with long enough timelines should consider adding a dose of Chinese consumer stocks to their portfolio to play this growth. (For related reading see Investing In China.)
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