Terry Keenan
With Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton headed to China this week for an economic summit with that country’s leaders, and with the Obama and Romney campaigns in full election mode, it’s a fair bet in this slow-news spring that the headlines will be chock-full of China-bashing stories and reports of currency manipulation.
Team Romney and Team Obama, no doubt, are likely to fall back on the xenophobic tendencies that always seem to rise during election years to implore voters to “Buy American.”
Trouble is, the real message from the candidates — the message that could truly help our economy and balance of trade — is not “Buy American” but “Sell Chinese.”
That message was driven home in spectacular fashion on Tuesday by Apple, America’s most valuable company. While the mainstream media was whipping up a frenzy over the labor practices at Apple’s outsourcing company Foxconn, Chinese consumers were buying up iPhones and iPads with abandon. Apple’s sales in China came in at an astounding $7.9 billion in the first three months of 2012. That’s three times the sales of a year ago, a number that translates into 20 percent of Apple’s total revenues.
With 600 million Chinese subscribers using a cell phone, the growth potential is exponential.
But this is not an Apple story alone by any means. Wall Street analysts have been waiting for more than 40 years for the day when every Chinese had a Coca-Cola or a Big Mac.
The Apple breakthrough shows that the Chinese upper-middle-class consumer has finally arrived. If tens of millions of Chinese now have iPhones, the market for other uniquely branded American goods — from Coach handbags to Tiffany jewelry to Estée Lauder cosmetics — shows remarkable upside potential.
As Apple CEO Tim Cook put it on his company’s earnings call last week, “There’s a tremendous opportunity for companies that understand China.” How much opportunity? Well, look at it this way: Apple’s earnings underscore that it is the No. 1 China play on Wall Street, and its stock is up 50 percent so far in 2012. Enough said.
Big American companies who sell coveted items to Chinese shoppers have two huge trends blowing at their backs. The most obvious one is that the middle class, now estimated to number about 300,000, is expected to double over the next decade. Just as important, economists expect that those shoppers, as they get richer and the social safety net expands, will start to spend a whole lot more.
Right now, consumer spending accounts for only about 36 percent of China’s GDP, about half the amount we spend here in the US.
While the Chinese aren’t expected to adopt the same “shop till you drop” spending habits of Americans, the Chinese savings rate is destined to go down, while shopping dollars go up.
This all spells good news for our biggest and brightest companies and our persistent trade imbalance with China. It’s a trend that will do far more for our economy than any trade sanctions or dollar devaluations could ever hope to manage.
terrykkeenan@gmail.com
China, Apple, Team Obama, Secretary of State Hillary Clinton, Secretary Timothy Geithner
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