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The Real China Miracle October 9, 2008

Posted by mniring in Online Merchants, Sell to China.
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Reposted from: The Motley Fool
By: Paul Elliot

Want to see my “China credentials”? Fair enough. How’s this?

I might be the only American you meet all year who learned to use chopsticks in China. Of course, I was 42 years old at the time.

I’m just saying …

Don’t write me off as some expat poseur trying to spook you with the horrors of a “post-American world.” Heck, no. I love the old U.S. of A., both as a citizen and investor. But my trip to China  opened my eyes to a few things.

This time last year, I accompanied my friend and colleague Bill Mann to China. From Beijing to Shanghai, from Hong Kong to Taipei to Macau, we took it all in, pausing to pick the brains of local business leaders and relay our findings to readers back home.

I’d never seen anything like it. These magnificent cities are exploding with people. And that spells opportunity for you.

You can look in four directions as far as the eye can see, and you see nothing but spectacular high-rises. At night it looks like Las Vegas: All the buildings are lit up; they look like rocket ships going off. It looks like the Fourth of July.

Our fortunes lie elsewhere
In case you think I exaggerate, that’s how a top U.S. real estate developer described Shanghai to business students at Wharton. Of everything I’ve heard, it comes closest to capturing the feeling of being there. What it doesn’t convey is the sense that this is only the beginning.

While we were in town, Oracle (Nasdaq: ORCL) unveiled a state-of-the-art research center, its third in China. Intel (Nasdaq: INTC) already had full-scale manufacturing, research and development, and sales operations in Shanghai, and Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO) had been there since 2005.

That’s small potatoes
Even without big tech, China’s economy has been growing at 10% per year for three decades, lifting more people out of poverty than any country in history. National Geographic dubbed it “the largest urbanization in human history” — with 150 million people and counting migrating to major cities.

One in four current residents of Beijing is a migrant from the countryside. You can hardly blame them — urban workers earn more than three times as much money as those living in rural areas. Buying a home, once beyond the dreams of the average Chinese family, is the latest craze in Beijing, where 1,000 new cars hit the roadways daily — and 96% are bought for cash.

Shanghai, once called “the Paris of the East,” accounts for 5% of the country’s GDP. One-fifth of the country’s total exports pass through its ports, now the busiest in the world. A top chef in Beijing or Shanghai earns as much as he or she would in New York or Los Angeles.

Living the good life
The Great Wall is the most awesome structure I’ve ever laid eyes on, but when I close those eyes and think of Beijing, what pops to mind is Rolex (22% of affluent Chinese men own one) or Rolls Royce. The affluence of the new luxury class in Shanghai and Beijing is simply a sight to behold.

In a mall in Beijing, you can browse three or four storefronts featuring Apple (Nasdaq: AAPL) products, and the company is aiming to open its first direct-run store by the time the Olympics begin later this summer. Lacoste, Valentino, Cartier, and Chanel are everywhere. Armani plans to open seven new stores in China in 2008, where young shoppers dig McDonald’s (NYSE: MCD) and pop into Starbucks (Nasdaq: SBUX) for an afternoon jolt.

No wonder 60% of the Fortune 500 has a presence in Shanghai, a number that grows by the day. You can’t help but wonder what the remaining 200 could possibly be thinking. China is already the planet’s largest consumer, for Pete’s sake, and the third-largest consumer of luxury goods in the world.

“The investment opportunity of a lifetime”
Nine times out of 10, you can dismiss statements like that as pure hype. But this is the rare case when the shoe fits. China may have hurdles to overcome, but the mass migration, urbanization, and rise of its middle class may be the investment story of our century.

But there’s a catch. This transformation will be measured in years, not decades. The smart money, as I discovered on my last trip to China, is already restless. Investors are looking beyond the skylines of Shanghai and Beijing to what I call The Real China Miracle. And I’d suggest that you and I should look there, too.

Morgan Stanley’s chief economist calls it, “The biggest economic story to come out of China in 25 years.” As far as I’m concerned, any company that doesn’t have a defined focus and strategy to exploit this demographic tsunami isn’t worth your time, energy, or money.

China: Ten Things You Should Know About an Online Superpower October 3, 2008

Posted by mniring in Online Merchants, Sell to China.
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Reposted from: SEOmoz.org

Chinese Sun Set by Steve Webel


China. Even in this day and age, sensitive information rarely leaks out of the Great Internet Firewall.

Fortunately for Western pundits, China toots its horn every six months with the release of a half yearly report on Chinese internet development. The July 2008 edition was recently released in English, but to save you from reading through 27 pages of dry research and occasional Engrish, SEOmoz has summarized the report for you.

Here are the top three facts that China wants you to know about the internet:

1. China has the most internet users in the world

“…by the end of June 2008, the amount of netizens in China had reached 253 million, surpassing that in the United States to be the first place in the world.”

2. China has the most broadband users in the world

“This report, the 22nd Statistical Report on the Internet Development in China, also indicates the number of broadband users has reached 214 million, which also tops the world.”

3. China has the most cc-TLD domain names in the world


Source for charts: CNNIC, Nielsen Netratings, ITU
    • “…by the time of July 22, the number of CN domain names, which was 12.18 million, had exceeded .de, the country-code Top Level Domain for Germany, thus becoming the largest country code Top-Level Domain names in the world.”

So that’s what the Chinese government wants you to know about their internet, but SEOmoz couldn’t resist creating a top 10 list, so we humbly suggest seven more nuggets you should know about China.

4. China’s internet penetration rate continues to grow and grow and grow…

  • US internet usage has hovered around a 70% penetration rate in the last five years, while Chinese internet penetration has jumped from 7% to almost 20% in the same time period.
  • Translation: China could plausibly reach a similar penetration rate to the US within 20 years.
  • What impact would a single nation of almost one billion Internet users have on internet activities such as blogging, creating videos or online commercial transactions (i.e., buying stuff)? How much additional user generated content would Chinese users unleash on the world wide web? What Western companies are ready to take advantage of this flood of internet usage?

5. China loves instant messaging QQ

source: Pew Internet May 2008, CNNIC July 2008
  • IM usage is more popular than email and using search engines in China
  • 195 million Chinese (an incredible 77.2% of Chinese internet users) have used an instant messaging service in the last 6 months, compared to just 40.0% of US internet users who have _ever_ used IM
  • Once online, 39.7% of Chinese internet users cite IM as the very first thing they do, more than any other internet activity
QQ client (look familiar?)
  • Tencent’s QQ program is the leading IM program with 77% market share
  • QQ has 342 million active user accounts
  • QQ has 42 million peak concurrent users
  • QQ has 26.1 million paying internet subscribers & 13.4 million paying mobile subscribers – wow, an IM program with 40 million paying subscribers  (envious, MSN and Yahoo?)
  • QQ.com is one of the biggest websites in the world, ranking in the top 3 web properties in China, alongside Baidu and Sina

6. China loves mobile phones

  • China has 601 million mobile phone users according to the latest government report
  • From January 2008 to June 2008, there were 53.3 million new mobile phone users
  • One carrier, China Mobile, has over 414 million mobile subscribers, ranked #1 in the world
  • However, bad news: only 12% of these users have accessed the Internet. Because of the lack of proper 3G network (none of the Chinese telcos have a 3G license), an estimated 73 million had accessed the internet from a mobile phone                                                                                                        
  • Good news – the Chinese government plans to issue 3G licenses to the major telcos within the next 6 months, which means…
  • A potential bonanza for phone manufacturers around the world as someone has to come good with 601 million new 3G handsets (the sheer size of the Chinese market will be beneficial for all as economies of scale ensure global prices for 3G handsets/accessories will fall)

7. The Great Firewall of China is alive and well

  • Think you know how to game social networks? Try going head-to-head with the “Fifty Cent Party” – an estimated 280,000 strong army of government-trained social networkers
  • The Far East Economic Review says the Fifty Cent party has one objective – “To safeguard the interests of the Communist Party by infiltrating and policing a rapidly growing Chinese Internet”
  • According to the Feer.com’s source, high authority Chinese websites are forced to have their own in-house team of government goons patrolling content for political correctness      

8. China’s Tier II & Tier III cities – wait, there’s more to China than just Beijing and Shanghai?


Tianjin, a Tier II city in full construction mode. Photo credit – yakobusan
  • According to this fool.com article, 93 cities in China have more than 1 million population, compared to just 9 in the US
  • Beijing, Shanghai, Hong Kong and Macau (and sometimes Guangdong and Shenzhen) are usually referred to as China’s Tier I cities.
  • Tier I cities are already saturated by foreign companies and foreign direct investment in just about every market you could think of…
  • Which is where Tier II cities come in – boasting huge populations, transport hubs and booming economies, most Tier IIs fly under the radar despite having lower barriers to foreign entry. For example, Chongqing is a Tier II municipality with a whopping 32 million residents and more than 3 million internet users
  • Check out the big 30 Tier II and Tier III cities showcased in this April 2007 China’s 30 Rising Urban Stars

9. There are no girls on the Chinese internet

  • Not sexism, as Chinese women are as likely as their male counterparts to go online –  the internet gender ratio corresponds almost exactly with China’s actual gender imbalance of 53% Male, 47% Female
  • Included the above chart because I’m stumped, pretty sure the disparity has nothing to do with the infamous One Child policy (it was introduced in 1979), so what’s going on with the over 50s?

10.  The rise of Chinese superbrands

  • Q: What does China Mobile have in common with Google, GE, Microsoft, Coca~Cola?
  • A: They represent the top 5 brands in the world, as measured by the dollar value of their brand
  • From the way this dragon has risen from its slumber, it may not be long before the first Chinese superbrand goes global – in 2007 four of the world’s 100 most powerful brands were from China (five if you include HSBC bank)

So there you have it folks, 10 things you should know about China. I hoped SEOmoz has helped lift the red curtain enough to unveil the potential in the East.

How to Cash in on Chuppies September 10, 2008

Posted by mniring in Online Merchants, Sell to China.
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By: Tony Sagami

Reprinted from http://moneyandmarkets.com/issues.aspx?How-to-Cash-in-on-Chuppies-1797

Even though I’m the right age, I’ve never considered myself to be a yuppie. Even when I was young and dumb, I never drove a BMW … bought a Rolex … or belonged to a country club. But I know a yuppie when I see one and China is full of them.

And unlike the U.S. where there is debate about how rapidly the economy and consumer spending are slowing, chuppies are making sure there is no such concern in China.

The Chinese National Bureau of Statistics reported that retail sales soared by an eye-popping 22% in April!

Those Chinese shoppers aren’t just buying chopsticks or tofu, either. They’re buying big ticket goods like crazy. Jewelry sales jumped by 37.5%, apparel by 32.6%, and furniture climbed 41.7%.

The fuel behind that spending boom is growing urban incomes, which rose by 17.6% over the last 12 months, and gave chuppies (also known as “little emperors”) large disposable incomes.

These chuppies are often the sole children due to the one-child policy in China and have been spoiled with an overblown sense of self-importance and entitlement. They often live at home and spend their entire paychecks on luxuries…and frequently on luxury goods.

Asia: The Epicenter of the Luxury Boom

It doesn’t matter where I travel in Asia — Hong Kong, Shanghai, Tokyo, Singapore, Taipei, Beijing, Kuala Lumpur, or Shenzhen — I always find a sea of Louis Vuitton handbags. You’d have to see it with your own eyes, but the number of women without Louis Vuitton handbags is in the minority.

A Louis Vuitton handbag, more than any other luxury good, is the ‘must have’ status symbol for women in Asia. In fact, the last time I was in Singapore, so many shoppers were crowding into the Louis Vuitton store on Orchard Road that the manager had to hire security guards to keep people out. Talk about demand!

And get this: China bought only 1% of luxury handbags five years ago but according to a recent Goldman Sachs survey, China is now the third-largest consumer of luxury handbags at 12% of the market. And it is expected to become the #1 luxury market in the world.

The reason for the luxury spending spree is simple — China’s booming economy is rapidly creating an army of millionaires as well as a bulging eager-to-spend, affluent middle class population.

  • There are 100 million middle class Chinese today and that number is expected to double by 2010. These affluent middle class Chinese yuppies are educated, have well-paying city jobs, and have money in their pockets to spend.
  • 50 individuals in China had wealth of at least $1 billion, while 2,000 were above $100 million, 35,000 exceeded $10 million, and 150,000 people had $5 million. At the same time, total assets owned by Chinese millionaires reached $1.7 trillion, increasing 8.8% year over year.

Asia is all about consumption. Every time I visit, I’m bowled over by the sheer volume of shopping going on. I’m not talking about people buying crappy tourist-type t-shirts, either. These rich Chinese are buying so aggressively that they are pushing up the prices of all luxury goods.

A popular China luxury index that tracks 32 items, including Rolls-Royce Phantoms and the Louis Vuitton Speedy Bag, showed that the price of luxury products in China jumped 8.7% in 2007.

That’s why luxury retailer Cartier has opened 25 new stores in mainland China as of March 2008 and Hermes International said that it will triple its stores in China over the next five years.

China isn’t the only country that is minting millionaires and a free-spending middle class. India is the second fastest growing economy in the world after China and its economy is growing at a 9.4% annualized rate — the fastest pace in 18 years!

India had 83,000 millionaires in 2006, a 19.3% year-over-year increase, and now has a middle class population of 300 million, roughly equal to the entire population of the United States!

According to the Knowledge Company, a New Dehli consulting company, there are now about 1.6 million Indian households that spend an average of $9,000 a year on luxury goods.

While I don’t usually talk about specific companies here in Money and Markets, I’m going to break that rule today and tell you about a company …

One of the Best Ways to Play The Chuppies’ Luxury Spending Spree

As I see it, few luxury retailers are better positioned to profit from the Chuppies’ spending boom than Louis Vuitton Moet Hennessey (LVMH).

LVMH was formed after mergers brought together Moet et Chandon and Hennessey, a leading manufacturer of cognac, and Louis Vuitton in 1987. The end result was one of the most prestigious luxury brand names in the world.

There is a lot more to LVMH than just Louis Vuitton handbags, though. The conglomerate owns 60 sub-companies that offer a wide variety of luxury brands that are sold only through exclusive boutiques in upscale locations in wealthy cities. As of the end of 2006, LVMH operated approximately 1,900 stores worldwide.

LVMH’s main product lines can be divided into four distinct segments of the luxury market …

1) Fashion and Leather Goods: Louis Vuitton, Givenchy, Donna Karan, Fendi, Celine, Berluti, and several other luxury names that mere mortals like me have never heard of.

2) Wines and Spirits: Moët & Chandon, Dom Pérignon, Hennessy, Glenmorangie, Domaine Chandon, and many other premium brands. The oldest of the LVMH brands is wine producer, Chateau d’Yquem, which dates its origins back to 1593.

3) Perfumes and Cosmetics: Christian Dior, Guerlain of Paris, Kenzo, Loewe, Acqua di Parma, La Brosse et Dupont

4) Watches and Jewelry: TAG Heuer, De Beers, Zenith, Chaumet, FRED of Paris

And get a load of this — LVMH CEO Bernard Arnault said he expects global spending on luxury goods to almost double in the next five years to $440 billion. According to Arnault,

“This is due to three factors. The creation of new wealth, the amount of existing consumers is increasing, and we are continuing to develop new markets.

“Russia, India, and China represent very important business and one third of all luxury goods will go to these markets in the next 10 years.”

Coincidentally, the top four markets for luxury products are the United States, Japan, China, and Russia.

Bottom line: It is no coincidence that LVMH’s fortunes have increased with Asian incomes and that trend is not going to change. In fact, the long-term economic growth story of Asia is still in its infancy.

I have to confess that I wouldn’t dream of dropping $200 on a bottle of Dom Pérignon and I don’t own any Louis Vuitton bags, but all my status-conscious friends and most middle-class women in Asia do. And that’s why I recommended LVMH to my Asia Stock Alert subscribers back in December.

I’m not saying you should run out and buy the shares right now, but I do think the company proves that the explosive Asian economy is creating its own base of money-spending chuppies and that will benefit not just manufacturers and exporters but also plenty of retail concerns.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.