One on One with Jing Ulrich, Chairman of China Equities at JPMorgan
Tuesday, September 02, 2008
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SUSIE GHARIB: Economies around the world are slowing, not just in the U.S., but in Europe, Japan, and even China. Our guest tonight says China's economy is at a turning point. Joining us now Jing Ulrich, chairman of China equities at JPMorgan. Hi, Jing.
JING ULRICH, CHMN. OF CHINA EQUITIES, JPMORGAN: Hi, thank you for having me.
GHARIB: Well, we're happy to have you back. And tell us why you think China is at a turning point. What do you mean by that?
ULRICH: Well, in the last five years, between 2003 and 2007, China's GDP growth was in a double-digit rate. We also have seen export growth hitting record highs. Productivity gains were also massive. However at this juncture, given the global economy is slowing, Chinese exports are slowing as well. We're seeing Chinese growth rates coming off. So in the next five years, growth rates will probably be around 8 percent rather than 11 percent. So therefore we think the economy is at a turning point.
GHARIB: Well, 8 percent still sounds pretty good compared to some of these other economies that I mentioned a short while ago. I mean, how do you characterize for China what the impact of that will be? How big a slowdown is this really?
ULRICH: Well, it is a slowdown. Some sectors are getting harder-hit than others. The export sector, for example, is experiencing a downturn mainly because of the weakness in the U.S. and Europe. In other sectors, such as banking and infrastructure, we're seeing continued strength.
GHARIB: Jing, do you think that as the Chinese economy slows down that it will reduce its use of energy? Because that would have a big impact on oil prices if China were in fact to do that.
ULRICH: Well, China is the second-largest energy user in the world, consuming some 8 million barrels is a day. The U.S., of course, is dominant. But we need to keep in mind, China's demand for energy and oil is largely non-discretionary in that China's energy demand is driven by industrial usage, rather than passenger vehicles.
GHARIB: All right. Now, tell me, as Japan slows down, what impact would this have on American companies that are already doing business in China and for companies thinking about opening up business in China?
ULRICH: Well, it means tougher competition. You know, many American companies like Coca Cola, Procter & Gamble (PG), have been in China for decades. And they've been very successful. Yum! Brands (YUM) have been in China as well. You know, they operate KFC, Taco Bell, and Pizza Hut. And they've been doing very well also, because they do offer some sort of affordable luxury to the Chinese middle class. For other newcomers, competition is getting much more intensified because you're competing with European players in China as well as domestic players. So competition is tough.
GHARIB: Can you talk a little bit about what sectors are going to do well during this slowdown and which ones are really going to suffer?
ULRICH: Well, some of the sectors that will do well basically are the ones enjoying government support. Infrastructure building is a key area. Infrastructure basically includes power grid construction, water infrastructure, railway construction, and ports. So any company that is involved in these areas above will be benefiting. The banking sector also receives strong government support. Chinese banks now are among the most profitable in the world. So those are the two sectors we favor.
GHARIB: OK. Jing, we just have a little bit of time left. And I do want to ask you about the stock market in China. We have seen that it has had a sharp sell-off so far this year, down something like 54 percent. For American investors in China, is this a time to bail out, to buy, or to wait?
ULRICH: Well, you're referring to the Chinese market in Shanghai and Shenzhen. Most American investors. GHARIB: Correct. ULRICH: . will invest in Hong Kong or they can invest in ADRs in New York. And those shares have held up much better. Now in China we have to keep in mind the market is extremely volatile, so you have to be there for the long run. In 2007, the Chinese market was the best-performing market in the world. So far this year it has earned the dubious distinction.
GHARIB: Right.
ULRICH: . as the worst-performing market. So one needs to keep a long- term time horizon when it comes to investing in China.
GHARIB: That's always the case, isn't it, though? Thank you, Jing, so much for your insights, we really appreciate it.
ULRICH: Thank you.
GHARIB: My guest tonight, Jing Ulrich, chairman of China equities at JPMorgan.
