China opportunity knocks; beware bolder locals
BEIJING (Reuters) - China's growing domestic market, with its 1.3 billion consumers, presents big opportunities for foreign investors, but they will have to muscle it out with a home-grown generation of likely future corporate titans.
A wide range of firms, from financial services to retail and transport, are positioning themselves as China, focused on developing its internal markets, prepares reforms across various sectors aimed at bringing them up to global standards.
A year ago, China unveiled a 4 trillion yuan ($585 billion) 2-year spending package to stimulate the domestic economy as demand for exports tumbled during the global downturn.
Sectors set for big growth include insurance, autos and retail, which are all banking on China's growing wealthy middle class to fuel their rise, Shirley Yu-Tsui, China strategist for IBM (IBM.N), said at the Reuters China Investment Summit this week. The event was held in Beijing, Shanghai, Hong Kong and Taipei.
"We have identified the industries where we want to go deep," she said in Beijing. "They could be small today, but we see them as big opportunities for us in the next 5-10 years."
Outside the consumer space, China's financial services sector also looks set to take off, as Beijing prepares reforms ranging from a new board aimed at small- to mid-cap companies, to allowing overseas companies to list in China.
One highly anticipated development should see the first China Depositary Receipts (CDRs) issued next year, letting foreign based firms list in China, said Larry Chen, chief representative in BNY Mellon's (BK.N) Beijing office.
Another financial industry pegged for significant growth is the mutual fund business, whose assets could top $1 trillion as new products attract money away from banks.
Such figures have sparked a stampede to the market by global leaders such as HSBC (0005.HK)(HSBA.L), JPMorgan (JPM.N), Invesco (IVZ.N), Blackrock (BKCC.O) and Deutsche Bank (DBKGn.DE).
"A tripling of assets in five years is not an exaggerated target," said Mandy Wang, CEO of China International Fund Management Co, JPMorgan's China fund venture.
NEW COMPETITORS IN THE WINGS
The growth of China's domestic markets could bring its own rewards, but the frontier will be manned by more home-grown firms that could become China's Fortune 500 giants of tomorrow.
Names like PC maker Lenovo (0992.HK) and telecoms equipment vendor Huawei HWT.UL are already proving formidable opponents on their home patch, and are starting to challenge global players like Hewlett-Packard (HPQ.N), Dell DELL.O and Ericsson (ERICb.ST) on the global stage.
Since stumbling after its acquisition of IBM's PC business in 2005, Lenovo has attempted to remold itself into a developing market specialist with renewed effort at home, where it controls about a third of the market.
"Our China business has always been profitable -- only the international business was hard hit by the global economic downturn," Lenovo CFO Wong Wai Ming said at the Reuters summit, adding his company, which is listed in Hong Kong, would like to make a second listing in China.
"We will use the China model to go after emerging markets."
Foreign real estate developers looking to cash in on China's building boom could also get a run for their money from local names looking to shift to commercial real estate from a residential sector they already dominate.
Beijing Vantone (600246.SS)is looking to commercial property for higher profit margins as it aims to tap growing Chinese demand for high-quality office and residential space.
"Our plan is to develop commercial property on a large scale in major Chinese cities in the next 5-10 years," Vantone Chairman Feng Lun said at the summit, adding his company hopes to boost commercial development to 30 percent of its revenue in 10 years from a current 5 percent.
Vantone is also taking some baby steps on to the international stage, with a current development in New York. It is also looking for projects in Tokyo and London.
(Editing by Ken Wills & Ian Geoghegan)
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