DiligenceChina

Consumerocalypse Part I

We’ve all been praying for the Chinese middle class to emerge as a powerful consumption force – boosting all of our markets and our profit margins. Forget about cheap manufacturing or raw materials. The China Dream has always been for 1.3 billion consumers. Well, what if we are getting what we wished for? What if we’re seeing the first stages of a shift in consumption patterns?

Then we’re doomed.

Assume that coastal China – the busy, active part, involving a population roughly the same as that of the US depending on how you slice & dice — continues to find itself with ever-growing piles of rumbas. Do you think that there’s any way they are going to seriously moderate their consumption? Conserve? Re-use, reduce recycle? These phrases were punch-lines in the US — and we were raised by hippies. You know who taught these kids about life? Ex-Red-Guards who sang songs while tearing down ancient temples. This country still has restaurants specializing in endangered species – you think they’re gonna worry about dolphins in the nets or particles in the air?

Yeah, so what? What is the upshot of Chinese eco-degradation? Let’s assume it suffers as much and at the same pace as the rest of the economic powers. How will your life as a China manager be affected, in say 15 years?

More planning Tips for the Apocalypse:

A smaller, more crowded China.
I love the clean, green initiatives. I am impressed with the smart buildings and the hyper-designed communities. But the real policies that count in China are still Big Coal and Big Water. China’s landscape looks pretty — but has always caused headaches for its leadership. Not many boring fertile plains. China is all mountains and wild rivers and deserts. Now there’s no more water and the desert is spreading and you can’t breathe in Beijing during certain times of year. Dust storms, drought, toxic rivers, etc. You get the picture. In the likely event that big chunks of the landscape become uninhabitable – where do you think those people are going to move to? The outskirts of the nearest big city, that’s where. Why the outskirts? Because fences and armed guys in uniforms are going to keep them out of the nice parts of town that international businessmen like to go.

DC Hint: Plan for more travel time as checkpoints, military actions, and food riots make an already clogged downtown traffic situation even worse. Be extra careful about hiring non-local Chinese living in different sectors - they’ll always be using ‘stuck at the checkpoint’ as an excuse for being late.

Real estate
Generally speaking, the nicer areas will appreciate in value. New buying points, like security systems, elevated position (in case of flooding), helicopter access, and independent power and water supplies will come into play. Take Shanghai, for example: Pudong Villas look good in case of social unrest and mob violence – but ‘soft’ in the event of rising sea levels (as it was all built on muddy farmland). Fashionable Nanjing Lu gets high marks for in-building security – making it a top choice for the jet-setting Euro businessmen in town for a few weeks a quarter. Hope he doesn’t get caught in one of the upcoming street demonstrations (food, jobs, hate foreigners, hate refugee Chinese) or power outages /floods /infrastructure breakdowns. And THAT’S how flights get missed.

Human Resources & Staffing
Will HR continue to be a headache for top managers in the new China? It’ll be a buyers market for the wretched and refugee, but a bit tougher to fill those middle-management and front office vacancies. With its huge market and uneven skills base, the developed Chinese cities are going to look like an ideal place for adventurous overseas grads to wait out the storms back home. Look for waves of British party-boys to descend on Shanghai and HK if London switches to Sharia law – so it’ll be a buyer’s market for financial services sales help. More Europeans and Overseas Asians are around – but how to use them? Chinese retailers and electronics brands are the hottest places for talented local grads to work.

Logistics
Those with water or who can move water are going to be heroes in the new China. Let the tree-huggers talk about desalinization and conservation all they want. Organizations that control the source or distribution of water are going to be the new OPEC – at least in China. International players should focus on moving water (or ice) into China. Domestic distribution will be too tricky – and trying to control domestic sources of water will be suicidal.

Funny But True: The degradation of the polar ice caps will actually make harvesting the break-away glaciers much easier. How’s THAT for recycling, Al Gore?

International business centers
The rmb will appreciate considerably before long, as China realized it is buying abroad and selling domestically. Big spends on oil were bad enough, but China will become a net importer of food, water, wood and other raw materials as it exhausts or pollutes its own supplies. Since more and more of China Inc’s output is ending up getting sold in-country, it will be an easy decision to let the rmb appreciate. HK will break the peg to trade with the rumba – and even Taiwan will start to be absorbed into the RMB zone.

Businesses that can help western corporates access the Chinese market will do well. Selling from China to the West is starting to look like an outdated business model – there will be more money in Chinese consumption in the days to come.

Exports
China will be more about the China market than exports in the days soon to come. OEM production will still goes on, but as a specialty organized almost entirely by a few giant concerns. A rising rmb, skyrocketing shipping and raw materials costs and weakening global economy will make it less attractive economically — though places like Indonesia and Vietnam are picking up the slack nicely. China’s biggest growing export is garbage. For a while Shanghai and the rest of coastal China will just dump in the ocean or ship the trash inland – but the government will step in to enforce pollution laws (with death sentences, if necessary). All waste will get shipped out – to whomever is willing to take it. China will make it clear that if it can’t buy sufficient space to dispose of its waste it will resume ocean dumping.