Large industrial and infrastructure projects are shifting from China’s coastal areas toward the interior, as businesses focus on domestic demand for consumer goods, says Eric A. Brock, a founding partner of Clough Capital Partners, L.P.
“Migrant workers aren’t coming to Southern China to work in the factories. They’re staying home; they are working on these infrastructure projects,” Brock said. “And so what you are seeing is some of these export-oriented industries are moving into the interior, where they can find lower costs and new opportunities. That’s all adding up to higher wages.”
One Chinese company profiting from increased domestic consumption and a rising middle class is Man Wah Holdings (1999.HK). Historically, Man Wah has manufactured reclining sofas for export to the United States but has ramped up production of sofas to satiate Chinese demand.
“The important thing about Man Wah is they just listed last year in an IPO, and in this market that’s expanding rapidly, you can see 50% growth or more in demand for these reclining sofas in China over the next several years,” Brock said. “They have a balance sheet that’s net cash, very liquid, and they have national scale. They’re building a brand, they’re building a distribution and they have three to four times the market share of the next network closest competitor.”
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