Multinationals tell real China growth story

February 8, 2012

By Wei Gu

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

China’s official data isn’t always helpful. But the earnings statements of foreign multinationals give a good alternative reality check on the Chinese economy. Leaf through recent numbers from those with big businesses in the People’s Republic, such as Yum Brands, Siemens or Moet Hennessy-Louis Vuitton, and three trends emerge.

Consumer companies tell a tale of rising prices. Yum, the parent group of Kentucky Fried Chicken, is just one struggling to pass through rising costs to Chinese customers. Same-store sales rose by 21 percent in the fourth quarter, but food, wages and rent hikes helped drag down margins to 16 percent from 18 percent a year earlier. Yum plans to raise prices again in 2012, after a small 2 percent increase in September. So much for inflation being under control.

Heavy industrials, meanwhile, convey slowing investment. Siemens, which supplies machinery to manufacturers, reported a 16 percent decline in new Chinese orders in the last quarter of 2011, measured year on year. Power company Eaton Corp singled out China as one factor behind its own missed sales targets. Foreign suppliers feel the pinch early when manufacturers start running down stocks instead of increasing production.

Then there are the luxury firms. For them life is great, showing that even if the economy is slowing, the rich and powerful are doing fine. That’s bad for China’s rising wealth gap and its fight against corruption, both of which fuel social tensions that threaten steady growth. Richemont, which owns Cartier, and LVMH both enthused about Chinese demand in their quarterly statements. They are also the top brands for Chinese millionaires buying gifts, according to the Hurun report.

It’s not all bleak. Richemont’s sales in Europe, which rose 16 percent year on year, were driven in part by Chinese tourists. They bought $7.2 billion of luxury goods abroad during the lunar New Year break, according to the World Luxury Association. Those don’t officially count as imports – yet if they did, they would almost balance the estimated $10 billion trade surplus for January. It’s some comfort that China is consuming, even if not always at home.

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