China's Growing Consumption Economy Drives Investment Shift

May 11, 2015

Known for its manufacturing might, China is home to a rapidly-growing affluent population that is beginning to flex its spending muscles.

"The rise of the middle class is undisputable," said Jin Haitao, chairman of Shenzhen Capital Group, which manages 70 government-led funds.

"Venture capital and private equity can do a lot in this space," Jin said during the Duke International Finance Forum at Duke Kunshan University. "This is a very rosy picture for us."

By 2022, the upper-middle class alone in China is expected to include some 200 million people. Their disposable income is creating investment opportunities for companies in the retail and service sectors.

"It's a big pond to fish in," said Alan Buckelew, chief operating officer of Carnival, which owns nine cruise brands.

Carnival partnered with two companies in China to form domestic cruise brands, which was a first for the firm. Previously, its model was to let companies form in emerging markets then acquire them.

"We see the opportunity here is so rich that we can't wait for the natural evolution of our industry," Buckelew said.

China currently accounts for about 6 percent of the global cruise market. By 2020 that share is expected to be 20 percent.

"We believe within 10 years, China will be generating more cruise customers than the U.S.," Buckelew said. "We see enormous opportunity that we are gearing ourselves up for."

In some service sectors, China is already outpacing the rest of the world. It's normal for Chinese consumers to send money instantly to friends, pay bills, order pizza or buy tickets from within a text messaging app.

"E-commerce is much more advanced in China than the U.S.," Jin said. But the Chinese are only beginning to make use of financial management services, an area he said is primed for massive growth.

"In the past, Chinese people believed it was best to manage their money themselves," Jin said. "But they're coming to understand that's not effective, and are investing more in wealth managers. It's a great opportunity for wealth management services. I think the wealth of China has been understated."

Dhanin Chearavanont said he has always been optimistic about the investment environment in China. He is chairman and CEO of the Charoen Pokphand Group, and also serves on the Duke Kunshan University Advisory Board. With more than 300,000 employees worldwide in farming, retail and telecommunications, it's Thailand's largest private company and one of the biggest in Southeast Asia.

Chearavanont first invested in China 36 years ago and saw his company become the country's biggest producer of livestock. He said the company has thrived through several cycles of China's economy.

"China has entered the mature stage," he said. "You probably cannot imagine how underdeveloped China was 30 years back."

For China, the question is how it goes from being the world's factory to the world's market, Jin said.

"I think there is room for Chinese innovation," he said. "In the future, China may become the innovation top dog in the world."

Contact Info

Gregory Phillips
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.7801
Email: gregory.phillips@duke.edu

Erin Medlyn
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.8090
Email: erin.medlyn@duke.edu