The China Syndrome
I foolishly thought the Chancellors Autumn Statement would give me plenty to write about this month, but no. Sure the market for “buy-to-let” has been given another bashing but not before time in my opinion, particularly when it comes to overseas landlords. The fact that this is the first Statement or Budget that we have had for the last few years that has not tinkered with pension legislation is welcome but does not give you a lot to write about.
Instead my highlight was seeing the Shadow Chancellor fling his “well thumbed” copy of Chairman Mao’s Little Red Book over to George Osborne. I know it was a ham fisted attempt to make political capital out of the recent visit by the Chinese and the subsequent deals agreed with the UK Government, but the reality is that in the fifty years since the red book was published China has embraced Capitalism with a vigour that would make Wall Street blush.
I expect like me you were fed up seeing adverts highlighting “Black Friday” sales. This has really started to take off in the last couple of years and like “trick or treating” and obesity it’s an Americanism we can do without. However, although the day after Thanksgiving is traditionally the start of the Christmas shopping rush in the US, for China there is no such trigger to get people to spend money.
So they started one. It is known as Singles Day and is on the 11th of November each year. Apparently this started out in the early 1990’s in Chinese Universities as the date 11/11 is four single digits and is used to represent single people. Initially it was just an excuse for single students to party but in the last few years particularly since 2011 when the date was 11/11/11 it has become a “shopping” holiday.
Alibaba, which is the Chinese version of Amazon, actually broadcast a three hour television extravaganza on the eve of Singles Day to get people in the mood. It is a combination of midnight mass for consumers and Children In Need without the tears or guilt. So successful has this shopping day been that the sales on Alibaba’s site have increased by 60% year on year for the last four years, with this year’s total on Singles Day reaching $14.9bn. To put this in perspective, this is the same turnover that Marks and Spencer achieve worldwide in a year.
This in a nutshell demonstrates the major change in the Chinese economy and is one that tends to be overlooked by most commentators when discussing the impact on world stockmarkets by the slowdown in Chinese GDP growth. Of course the amount they are spending on capital projects is waning as there are only so many airports and cities that you can build. Instead, as the amount of disposable income its citizens have increases, the Chinese economy is becoming much more of a consumer economy like us in the West, and in that respect there is huge potential for growth which will benefit us all.
Take travel for example. The 109m Chinese that went abroad in 2014 spent $169bn, an increase of 28% over 2013. By 2024 it is projected that 242m will travel abroad each year, which to put in perspective is the equivalent of the populations of the UK, Germany, France and Poland combined.
While at home their spending is also helping western companies. In the last three years Apple has seen sales in China increase by 147% whilst over the same period sales in the US increased by only 32%. It is predicted that in two years’ time Apple will see Chinese sales overtake the US, something that would never have been predicted even five years ago.
So, the next time you read about the Chinese “downturn” take it with a pinch of salt, and bear in mind that if the current Chinese government wanted to create their own Little Red Book it would only have three words in it – “Spend, Spend, Spend.”