BY Fraser Tennant
The deeper trends reshaping the business and investment environment in China today are the focus of a new report – ‘China 2015: China’s shifting landscape’ – by the boutique investment bank and advisory firm, China First Capital.
As well as highlighting slowing growth and a gyrating stock market as the two most obvious sources of turbulence in China at the midway point of 2015, the report also delves into the deeper trends radically reshaping the country’s overall business environment.
Chief among these trends is the steady erosion in margins and competitiveness among many, if not most, companies operating in China’s industrial and service economy. As the report makes abundantly clear, there are few sectors and few companies enjoying growth and profit expansion to match that seen in previous years.
The China First Capital report, quite simply, paints a none too rosy picture of China’s long-term development prospects.
“China’s consumer market, while healthy overall, is also becoming a more difficult place for businesses to earn decent returns," explains Peter Fuhrman, China First Capital’s chairman and chief executive. “Relentless competition is one part, as are problematic rising costs and inefficient poorly-evolved management systems.”
“From a producer economy dominated by large SOEs, China is shifting fast to one where consumers enjoy vastly more choice, more pricing leverage and more opportunities to buy better and buy cheaper. Online shopping is one helpful factor, since it allows Chinese to escape from the poor service and high prices that characterise so much of the traditional bricks-and-mortar retail sector. It’s hard to find anything positive to say about either the current state or future prospects for China’s ‘offline economy.’”
Elsewhere in the report there are discussions that provide signals about future growth and profit opportunities in China, including: China’s new rules and rationale for domestic M&A; background on China’s most successful, if little known, recent start-up, mobile phone brand OnePlus; the implications of shutting out most private sector investment in shale gas; how Nanjing is emerging as the core of China’s ‘inland economy’; and why the Chinese stock market is currently in such a woeful state.
“We’re at a fascinating moment in China’s story of 35 years of economic transformation," says Peter Fuhrman. “But it takes more insight and focus to outsmart the competition and succeed.”