The grass is always greener on the other side, and for businesses and investors alike, heading East to pursue the China treasure trove of wealth creation is alluring.
So chasing the China treasure trove is attractive, particularly when the western panorama isn’t sexy. For example, last week, The Bank of England warned that families are about to suffer the biggest fall in living standards since comparable records began three decades ago. Moreover, across the English Channel, the EU sovereign debts in the peripheral countries have likely worsened due to lockdowns.
“China is creating more billionaires and millionaires than the US and could overtake the US in just six years”
WEALTH TRAINING COMPANY
The population is ageing and lacks entrepreneurialism.
Across the Atlantic and the US record twin deficits, trade deficit 2T and public deficit 30T US dollars makes investors squeamish. Think about it. How long can an economy keep falling further into debt to buy foreign goods and services, particularly when treasuries start to lose their appeal?
Even China’s conservative revised 5.1% GDP, which by western standards is considered an economic boom, has enough appeal to make investors pursue the China treasure trove.
The China treasure trove has thus far been elusive, particular for American companies
The list of American companies that have failed in China is as long as your arm.
Visual Capitalist shows a list of American companies from eBay, Amazon, Yahoo, Google, and Best Buy to name a few who have all exited their operations.
“Even China’s conservative revised 5.1% GDP, which by western standards is considered an economic boom, has enough appeal to make investors pursue the China treasure trove”
WEALTH TRAINING COMPANY
So why are some of the world’s largest companies failing in the world’s fastest-growing market, which has lifted 800 billion people out of poverty and created the fast-growing middle class?
China’s middle class has grown from 3.1% to 50.8% of the country’s total population between the years 2000 and 2018, according to Brookings. But American companies find it challenging to capture the China boom. One reason cited was cultural differences.
“Uber invested billions attracting customers and buyers only to be undercut by domestic rivals like DiDi, who received subsidies” – Wealth Training Company
Chinese consumers will not pay more for brand names, particularly electronics
Why buy a Sony DVD player or Nokia phone at Best Buy when you can pay less for the same product at a local store?” – Shaun Rein, China Market Research Group
But a new class of wealthy Chinese are snapping up European luxury goods. So French luxury goods maker Louis Vuitton is going great guns in China, and Italian luxury carmaker Ferrari is breaking all records in China.
Tech firms are also clashing with regulators is another reason why chasing China’s treasure trove is elusive
Breaking into the Chinese market is expensive. Uber invested billions attracting customers and buyers only to be undercut by domestic rivals like DiDi, who received subsidies. On the operational side, Uber ran into several hurdles. To avoid issues with China’s data localization laws, the company needed servers on Chinese soil.
Since Uber departed, the Tech shakeout continues in China for US companies. The US-China tech race is on, and geopolitical tensions are rising. So companies generating data (often seen as a national security concern) are likely to continue facing regulatory hurdles. Yahoo and linkedin have left.
So could the Nasdaq Golden Dragon be the China treasure trove for those investors able to stomach volatility from geopolitical tensions as the two giants size each other up?