China's Improved Living Standard Contributing to Global Economic Growth

by: Cindy Reed posted on: April 10, 2008 | about stocks: BIDU / FXI / SINA / SNDA / SOHU    
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Yesterday, April 9, 2008, Patricia Jiayi Ho from the Dow Jones Newswires published that China’s March automobile sales figures increased 21.4% over March last year. Consumer demand for automobiles has continued despite rising inflation. “Food-driven inflation has [had a] minimal impact on . . . spending decisions,” said Matthew Kong, an auto analyst for Fitch Ratings. The cost of a compact car is “not a big deal” to the middle class.

This spending pattern of the growing “China middle-class segment” and the expansion of urban infrastructure will continue to stimulate economic growth and stability for the entire world economy. The inflation problem is being dealt with by China and Hong Kong government leaders through recent decreases in both Income and Employment Taxes; also implemented were significant increases in minimum wages.

Decreased Taxes: Tuesday, February 26, news on China disclosed tax cuts in both Corporate and Personal Income Taxes and also Employment/Salary Taxes (marketwatch.com). Tsang (Hong Kong's Financial Secretary) also announced a Personal Salary Tax Rebate and a Property Tax Rebate (cnnmoney.com).

Increased Minimum Wage: Wednesday, February 27 news (marketwatch.com) on China highlights minimum wage increases across the country so that "the reality of higher food and fuel prices [is] offset with higher wages. This is more wages catching up to where the market is today." The rise in wages and lower taxes on salaries and property will help China to maintain a level of consumer calm and stability in view of high food and consumer goods prices.

Increased auto sales is only one area of significant China consumer spending. Additional spending trends are presented in an article dated April 3, 2008, by Shaun Rein of the China Market Research Group [CMR]. Mr. Rein presents findings (see “China's Rising Retail Market” on Seeking Alpha), regarding in-depth interviews with Chinese between the ages of 22 to 32. They were asked about the effect of “a global slowdown” on their shopping habits. The reply, “a resounding NO effect.”

A full 90% of interviewees said they expected to ‘spend considerably more’ in 2008 than they did in 2007, and the vast majority were “very optimistic” about salary potential in the next two years . . . expecting 10% to 25% increases in the next year...More than 70% of the young people . . . interviewed said they use search engines such as Baidu (BIDU) to find out more about products.

Other internet resources used for gaming and blogging are Netease (NTES), Shanda (SNDA), and Sina (SINA).

The hard working people of China deserve to improve their standard of living. I'm optimistic that as they participate in the world economy it will help pull everyone through the pervasive detrimental effects of the subprime problem. I feel “global economic optimism” is a factor that is sustaining the improved US stock market conditions in spite of negative domestic indicators.

Baidu is my personal favorite China stock. They are the dominant China search engine with over 60% market share in a market with over 210 million users. Recently BIDU expanded their services to include instant messaging and online radio services (including music ordering and downloading). BIDU also recently secured impressive management talent onto their team by adding Peng Ye as COO (formerly Apple’s (AAPL) China Chief) and Jennifer Li as CFO (formerly a GM (GM) executive).

Analyst price ranges for BIDU are from $300 to over $400 per share (current closing price $288.81), First Quarter earnings that will be released later this month are projected to have grown an impressive 87% compared to the 1st Quarter of 2007. Prior 4th Quarter reported earnings grew by 93% over the prior 4th Quarter. Given the growth of the Chinese economy and the Chinese internet user base, I feel BIDU (at $288.81) has more financial potential than Google (GOOG) (at $464.19).

Disclosure: The author holds long positions in BIDU and SOHU

This article has 6 comments! Add yours below...

Cindy Reed

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This article has 6 comments:

  •  
    windinmyface
    2
    Apr 12 11:58 AM
    If we in America listen to the Democrats, we hear an entirely different story. The poor chinese are nothing but a down trodden, slave race, with nothing but hope for a better life, and maybe America to bring them their freedom, and we can help by boycotting the Olympics. Do you think someone is streatching the truth a bit? I find it interesting in this artical, that this terrible country, and it red government, can, or would make tax cuts in both Corporate and Personal Income Taxes and also Employment/Salary Taxes, and our own free government can't, and won't do the same for its hard working people. Someone is being mis-informed, could it be we are not receiving all the facts?
  •  
    Feng
    Apr 12 02:01 PM
    Windinmyface2, I applaud for your questioning the main street message in this country w.r.t the Chinese people and government. I only wish there are more American people like you!

    As a Chinese living here for the past 7 years, I was very pissed off by the biased, one sided Western media coverage on Tibet and Olympic recently. We, American and Chinese alike, all know the media in China are controlled and not completely trustworthy. The Western Media's reporting in the recent month on Tibet and Olympic proved that they are no much better. To find the truth and build an informed opinion, one really needs to think independently and look for facts presented by both sides. Watch these videos on Youtube and I think you will start to understand why 99.99% of 1.3B Chinese people, not only the government, are so pissed off by the recent events.

    youtube.com/watch?v=uS...
    youtube.com/watch?v=ac...


    Your point about American politician and Media depicting Chinese as a people living in dire communist's rule without any freedom, aspiring for Western's help to gain their human rights and freedom is also right on. This popular thinking is really driven by the Western's sense of Western superioricy and condesension. These people know nothing about what majority of Chinese people feel and think, but claim they are doing something good for them? claim they are only against the China government but helping the Chinese people? When they hear different voice, they say, "oh, these people are brainwashed". In fact, mostly likely they are brainwashed by the mainstreet media, because Chinese people know the China media is not completely trustable therefore look for the other side's story, not so for these feel good western free Tibet prosters, most of who don't even know where Tibet is.
  •  
    J.D
    Apr 13 08:53 AM
    Looks like pure CPC propaganda to me. Even the photo looks like it's from a TV shot or something. I say "scam".
  •  
    User 179314
    Apr 16 07:13 PM
    It's funny how you never question CNN, BBC, or other Western media propaganda, while you question everything and news on the other side of the story. Suppose today you know it [the info/news from the other side] for a fact, would you then change your mind? No, you would be looking for other excuses. Any dissent is rejected as being "brainwashed"... when these people are living outside of China with access to "free" media, and the first thing they see when they turn on the news is Western media.

    Typical western logic...
  •  
    J.D
    Apr 20 07:13 AM
    Not sure if you're directing that comment at me, but as the media is controlled in China there's not a great diversity of views. Going too far outside the established line can land you in deep trouble. And yes, propaganda is common. This article says absolutely nothing, very soothing indeed.

    As for the failings of the rest of the world's media, I look at all news with a critical eye and recommend that others do the same. Given the diversity of press and freely available info, it's usually not hard to draw one's own conclusions. In mainland China, the options are limited by decree, however.
  •  
    Coffeygrinds
    May 12 01:03 PM
    My Website
    Cindy,
    We are seeiing activity in Sina Corp

    Earnings are expected Wednesday and the stock has already run into the early section of this slower Monday morning. The stock has spiked 7%, our HeatSeeker has been lighting up with the increased market action of buyers positioning in the SINA May 55 calls paying $.75 and $.80. Those large institutional buyers have sparked some retail follow up buyers, paying increased prices. This jump in the price of the stock and the options has us looking for a pullback and an opportunity to consider if the institutional buyers will return….

    your thoughts on this action? Anything going here?
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