China 2.0: Unleashing the dragon - Tim Rocks - Head of Market Research and Strategy
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China 2.0: Unleashing the
dragon
Tim Rocks – Head of Market Research and Strategy
August 2016
Jumping at shadows
A year of crises that weren't - ASX 200
5800
5700
5600 Greek
debt
5500
China
5400 currency
US rate
5300 hike
Oil price Brexit
5200 collapse
5100
5000
4900
4800
Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16
Source: Datastream
Page 2
The new silk road $US 1 trillion of regional investment by 2025 and a major reshaping of global trade and Chinese influence. Page 3
The new silk road
The cost of transport to Europe falls 65%
The travel time falls from 40 days to 20 hours.
CLSA estimates that there will be 385 separate projects totalling $1 trillion Pakistan and Kazahkstan have
been the biggest beneficiaries so far.
The first train from China to Iran
Container traffic Europe - China
(000 TEUs)
500
450
400
350
300
250
200
150
100
50
0
2012 2013 2014 2015 2020
Page 4
The Middle Kingdom
China 2.0: Opportunities from the new China
Economic reform has been bad for heavy industry but good for consumption
In Australia, this has been bad for miners and good for food producers.
What are the opportunities:
+ Tourism
+ Education
+ Food and Skincare
China GDP by Sector %
Mining vs China exposed consumer stocks
51 $ per share
49 250 40
47 35
200
45
30
150
43
25
41 100
20
39 50 15
37
0 10
35
2001 2003 2005 2007 2009 2011 2013 2015
Industry Consumer
Blackmores (LHS) BHP (RHS)
Page 6
Mining To Dining
Source: Westpac Economics
Service Exports Source: Westpac Economics
Education opportunity
The global education market has doubled since 2000 and will double again by 2025.
Australia is the 3rd largest education market. Contributing factors are:
• Increasing middle class wealth
• Lack of local education infrastructure
• English language courses preferred
• Pathway to residency
International Student Enrolments
(mill of students) Number of International Students
9.0
(000s)
900
8.0
800
7.0
700
6.0
600
5.0
500
4.0 400
3.0 300
2.0 200
1.0 100
0.0 0
US UK Australia France Germany Canada
2000 2002 2004 2006 2008 2010 2012 2025
Source: UNESCO, OECD
The Great Wall of Chinese Chinese tourism is already having a major impact Page 10
The Great Wall of Chinese
But there is much more to come…and domestic options are limited
Fun holiday?
Page 11The Great Wall of Chinese
This tourism surge will have a pervasive effect on the Australian economy and the stock market. Some of the potential
beneficiaries among listed stocks include:
• Casinos such as Star Casino, Crown and SkyCity. Chinese gamblers already represent 80% of VIP revenues at Star
Casino but only around 2% of main floor revenue.
• Theme parks owners such as Ardent Leisure and Village Roadshow. The Gold Coast will be a major winner given the
rapid expansion of Coolangatta Airport. Village Roadshow also has an agreement with CITIC to build parks in China.
• Airports will benefit from steady growth in volumes, particularly Sydney Airport.
• Airlines will benefit, particularly through internal domestic flights. Virgin Australia is now part-owned by two Chinese
aviation groups, Hainan Aviation and Nanshan.
• Accommodation providers including Mantra and Event Hospitality.
• Flagship retailers such as Scentre which operates the Westfield centres.
Tourist Arrivals by Country
annual sum, number of people Hotel Occupancy NSW %
1,200,000 80
78
1,000,000
76
800,000 74
72
600,000
70
400,000 68
66
200,000
64
0 62
60
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
China US
Page 12Feeding the dragon
Australian food, vitamin and skin care producers will be major beneficiaries as Chinese tastes evolve.
• Chinese consumers’ willingness to use e-commerce makes it easy to gain access to the market.
• Food safety is a critical issue for Chinese consumers after some high profile scandals.
Potential winners include:
• Skincare (BWX through its Sukin brand) are the most searched brands
• Vitamins (Blackmores, Vitaco) – Blackmores also gets 40% of revenue from China
• Milk (A2 milk, Bellamy) and honey (Capillano)
• Wine (Treasury Estates)
Australian exports of food products to China
Page 13E-commerce leader
China leads the world in ecommerce with more to follow:
• The Great Firewall has allowed Chinese companies to copy and improve on western competitors:
• Baidu = Google
• Tencent = Facebook + Twitter (but better)
• Alibaba = Ebay + Amazon + Paypal + a lot more
• Less regulation that acts as a barrier.
• Massive scale
Page 14Willingness to move online China is a much faster adopter of new products than the rest of the world. Take-up of UBER has been five times faster in China. In fact China is now 70% of the global market for ride sharing. No wonder Apple has bought a stake in Didi. Source: Hillhouse Capital Page 15
Alibaba as a global leader Alibaba is China’s largest retailer, and would be the second largest in the US behind Walmart. Source: Hillhouse Capital Page 16
China as an innovator
China is now applying for double the number of patents as the US.
Japan is in decline
Patent Applications by Country
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
China US Japan
Source: World Bank
Page 17And there are plenty of other opportunities
Tourism, education and food exports are the major opportunities for now.
However there are plenty of others in:
• Healthcare
• Financial services including insurance and asset management
Page 18This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to note that past performance is not a reliable indicator of future performance. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on 132 135 8:00am to 6:30pm (Sydney time)
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