FASTER FOREX TRANSACTIONS (China)

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[maui_hawaii]

For businesses in Shanghai, foreign-exchange transactions have become substantially quicker in the past two months. For years, multinational companies trying to convert and remit funds overseas have gone through nearly month-long processes of coordinating forms, signatures and company chops through their offices, their banks, their overseas counterparties and the State Administration of Foreign Exchange. Two months ago, SAFE began using an Internet-based system in Shanghai that links computers in every bank branch in the city-much as music-downloading Web site Napster links the computers of music buffs. Representatives of the company that developed the system, Hong Kong-based ecSolutions, say the network takes five days to complete a foreign-exchange transaction, much faster than the 25 days it took without the system. Companies have to buy the software for a one-time fee of between 1,000 renminbi ($120) and 2,000 renminbi to hook into the network. Executives at ecSolutions, a member of the TA Group, a Hong Kong-based software company that provides information-technology services to financial firms, say they hope to have similar systems in other cities.

[maui_hawaii]

For years, multinational companies trying to convert and remit funds overseas have gone through nearly month-long processes of coordinating forms, signatures and company chops through their offices, their banks, their overseas counterparties and the State Administration of Foreign Exchange.

Its a BIG problem.

Even if we do make profits in China, how you gonna get them home?

I can get money to Singapore or Japan in about 15 minutes.

[maui_hawaii]

bump

[dr_who]

Hopefully American businesses will keep that in mind before they set up shop in China, and hopefully the U.S. government will keep that in mind before it comes up with more rules governing the flow of cash into and out of the country.

[maui_hawaii]

This Forex thing was/is one of the cash cows of China, for the government. Just imagine all that volume of money flowing in... and goods flowing out...

Most big corporations don't deal with Chinese banks at all, or very minimally.

Most companies that export to China set up shop in Hong Kong, and then do the deal there, not in the PRC.

The "importing" (our exporting) is often done in Hong Kong in HK dollars through a US corporation and the HK branch of the Mainland importer... that importer then takes the goods from HK to the PRC... or they simply ask for delivery to be made to Shanghai...

That is just one of the many reasons why we don't export a bunch of stuff to China.

[maui_hawaii]

I have to say, it depends on the corporation though...

Most just stock up on enough RMB for their manufacturing costs... and thats about it.

[dr_who]

Don't forget TLC.

[maui_hawaii]

TLC???

[dr_who]

tender lovin care. Obvious, really.

[maui_hawaii]

Just one of those days...

[AIG]

Mainland China just replaced Germany as America's 5th-largest export market this year.

[maui_hawaii]

I will believe it when I see it, but I don't think so.

According to the data here we exported over $29 billion to Germany, but only $16 billion to China...

I have a strong feeling that China has not doubled its imports from the US in under 2 years.

[maui_hawaii]

Link

[AIG]

There was an article just a few days ago that mentioned that China just overtook Germany's as America's 5th largest export market. I will try to find the article again in my browser history, but I'm sure you'll be hearing about this from other sources just as time goes on. The link you provided is two years old. There's no doubt that China is becoming increasingly important as an export market for the US.

[AIG]

The link you provided is still interesting. If you add China and Hong Kong together, you get more than $30 bil. in exports, which is bigger than Germany. Hong Kong is a part of China now.

[maui_hawaii]

Isn't it odd that over 47% of all exports to the 'mainland' go to one small speck on the map...that speck also has less that .5% of the population of all of China...

What does that really say about the mainland economy, other than Hong Kong? No need to be tied up into the semantics of 'China'...

[AIG]

Hong Kong is actually an official part of China now. It's not a matter of semantics anymore.

Given Hong Kong's economy is already a First World economy while the rest of China is still developing, it's not surprising that Hong Kong makes up a disproportionate share of America's overall exports to China. Actually, you'd expect that to be the case. Hong Kong's per-capita GDP is still 6-7 times larger than that of Shangahi, which is mainland China's most developed city today.

Now, what you have to do is extrapolate into the future. As an emerging market, mainland China's economy and imports from the US are bound to grow faster than Hong Kong's.

According to Richard Nixon's Memoirs, mainland China's imports from the US stood at only $500 mil. the first year after Nixon went to China and opened up trade relations. Now, they stand at about $20 bil., which is a 14% a year rate of growth. That rate of growth certainly exceeds the rate of growth of the US economy during that period and probably also exceeds the rate of import growth for any other country in the world you can name.

[Consort]

€an an¥ of thi$ make ¢s at a££?

[AIG]

An already-developed economy like Hong Kong simply can't grow as fast or import as much as an emerging market economy can. If you speak to people from either Hong Kong or Taiwan these days, they'll tell you directly that the future belongs to the mainland. Among other things, the US tech sector is targeting China more than ever these days because, unlike the US, China's tech market is not saturated. So, naturally, US tech companies are setting up more factories and R&D centers in China and, of all the places in the world today, US tech companies are experiencing their fastest growth in mainland China.

[maui_hawaii]

$500 million in 1972 adjusted for inflation would equate to about 1.5 billion today...figure up the annual rate with that in mind... it won't be 14%...

[AIG]

Extrapolating into the future is important. Warren Buffett took a trip with Bill Gates to China a few years ago and while there quoted Wayne Gretsky: "You skate to where the puck will be rather than where it is now."

[maui_hawaii]

An already-developed economy like Hong Kong simply can't grow as fast or import as much as an emerging market economy can.

a completely unproven and unsubstantiated claim.

[AIG]

Historical inflation is about 2%-3%. That doesn't take away much from 14%. At any rate, whether you adjust for inflation or not, China's imports from the US have grown faster than the overall US economy itself.

[maui_hawaii]

Another famous financeer once said, "I never thought of myself as a fantasy writer until I read some of my 5 year old forecasts..."

[AIG]

That emerging market economies like the E. Asian economies have grown faster than the US economy over the past 30 years is a well-known fact. All countries or companies have stages of growth. The first stage is the exponential phase where they experience extremely fast growth but then eventually they hit a "maturity phase" where growth is considerably slower, on the order of 2-3% like in the US. The people in Taiwan, Hong Kong, S. Korea, Singapore, Japan, etc. will tell you themselves that their days of hyper-growth are long gone. It's more slow and steady growth from here out.

[maui_hawaii]

That emerging market economies like the E. Asian economies have grown faster than the US economy over the past 30 years is a well-known fact.

Have you lost your mind???

[AIG]

Taiwan, S. Korea, Singapore, Japan, were experiencing 10%+ rates of GDP growth through the 1960's, 1970's, and 1980's. The US was lucky if it grew in the high single digits in any given year. Yes, emerging markets did grow much faster than the US over the past several decades.

[AIG]

You're about the only person on the planet who doesn't believe that emerging market economies generally grow faster than already-developed economies like the US.

[maui_hawaii]

$100 worth of Coca Cola in 1970... if you sold today... would be worth $3,780. Thats over 37 times... or 3700% growth... lets find an Asian stock that can match that.

[AIG]

Another famous financeer once said, "I never thought of myself as a fantasy writer until I read some of my 5 year old forecasts..."

The people who were forecasting China's economy 20 years ago underestimated rather than overestimated. China today has progressed far more than anyone's wildest dreams.

[AIG]

Coke is an Asian stock pretty much today. Coke actually gets more revenues from Japan today than it does from the US. Japanese just love to drink Coke. As far as Coke's future market, that's China. As Coke's biggest shareholder, Buffett took a trip to China and you'll notice he hasn't sold any Coke nor does he plan to, mainly because of China.

[AIG]

If Coke was limited to only the US market, you can be sure that Coke's stock price would never have risen as much as it has since 1970. Today, overseas markets are more important to Coke for growth than the US domestic market.

[AIG]

In general, in an era of globalization, US companies are deriving an ever greater share of their overall business from abroad than from the US domestic market. This has led to the recent phenomenon of US corporations relocating their headquarters to Bermuda. In Bermuda, these corporations do not have to pay US taxes on profits derived outside of the US. But if they stayed in the US, these corporations would have to pay US taxes on their overseas profits. All this just indicates the growing importance of overseas markets for US corporations, in particular China. The last thing US corporations want is for China to become the next dysfunctional, messy Third World economic basketcase. US shareholders want to get rich in their lifetime off of China, not wait around for generations like they have to do with India. The CCP is good in that they can pursue economic reforms in an expeditious manner without the trouble of any democratic legislative gridlock. Think in terms of economics only.

[maui_hawaii]

Coke actually gets more revenues from Japan today than it does from the US.

30% of all of Coke's sales come from North America.

25% from Latin America

22% from Europe, Eurasia, and the Middle East

17% for all of Asia

6% for Africa

Of the sales to Asia, (the 17%) the breakdown is as follows:

Japan 29%

Phillippines 17%

China 16%

Australia 8%

Korea 5%

Other 25%

That means China represents about 2.7 % of Coke's global sales.

Japan represents 4.9% of Coke's global sales.

Source: CocaCola.com

[maui_hawaii]

By the way, Mexico is included in the totals for Latin America, not North America.

[AIG]

It took the First World several centuries to reach their current First World status, but it took the E. Asian emerging economies only several decades. It's obvious to most people that emerging economies generally grow faster than already-developed economies.

[maui_hawaii]

If it were truly "North America" then 40% of all of Coke's sales would be from 'North America'.

Canada and the US together make up 30%, Mexico makes up 10% of global sales...

And also they made a point about the extensive downturn in the US market in 2001, which these numbers represent.

[maui_hawaii]

No one is saying that Asian economies have not grown, they have... but give me a rough idea how exactly that happened...

[AIG]

Where exactly at cocacola.com did you get your data? I distinctly remember reading that Japan was Coke's largest market now, although I could be wrong.

But again, you have to skate to where the puck will be, not where it currently is. We live in an age of globalization. To think that Coke or any other company is going to ignore the Chinese market is ridiculous. I seriously doubt Coke is gonna abandon the Chinese market anytime soon. I doubt Buffett is gonna tell Coke's management to pull out of China.

[AIG]

E. Asian emerging markets grew faster than the overall US economy by exporting goods to the US. In the process, they themselves achieved First World status. But there's nothing wrong or illegitimate from an economic point of view about providing goods to the US. The US benefitted too through years of cheap Asian exports which helped give Americans the highest standard of living in the world. It's the nature of economics and capitalism to be a two-way street. Americans benefit from China today the same way they benefitted from Japan, Korea, Singapore, etc. before. Americans can buy the cheap, affordable goods upon which their standard of living depends.

[maui_hawaii]

Where exactly at cocacola.com did you get your data?

here

Click the top right links to get around...

I distinctly remember reading that Japan was Coke's largest market now, although I could be wrong.

Your memory is fading and you are very wrong...

We live in an age of globalization.

Very much so. The Japanese, Brits, Aussies, and yes even the Chinese should enjoy a frosty Coke just like the next guy...

To think that Coke or any other company is going to ignore the Chinese market is ridiculous. I seriously doubt Coke is gonna abandon the Chinese market anytime soon. I doubt Buffett is gonna tell Coke's management to pull out of China.

Who said pull out? Me? Where? No one said anything about ignoring or pulling out... but rather I promote realism over the 'China is the next best thing and the biggest in the world...blah blah...'

[AIG]

Your data are correct, but that doesn't change the fact that as far as future growth, Coke views China as its #1 growth market. Any company has to pay attention to where its future growth is going to come from. The fact that the average Chinese today consumes just 2 Cokes a year doesn't mean that the average Chinese will still be consuming 2 Cokes a year in the future. If anything, such a low rate of consumption means all the more that China represents Coke's #1 growth opportunity going forward. That's where the emphasis lies.

[AIG]

Companies have to identify where their future major growth markets are. For Coke and any other large US company, that is China. So it's not surprising they focus on China. It's natural to focus on the country where you think most of your future growth will come from. That's just smart business and doesn't signify any irrational exuberance.

[AIG]

Since China is the best growth opportunity for most companies, China really is the "next big thing" for most companies. It's hard to imagine Americans doubling their consumption of Cokes (already 300 per year) in the future but much easier to imagine Chinese doubling, quadrupling, or increasing by 10-fold their yearly consumption of Coke in the future. China has more growth potential.

[AIG]

Basically, companies have to concerned about their future more than their present. They have to keep their earnings growing in the future. So it's natural for them to focus on China.

[maui_hawaii]

According to this the world is slated to grow at 6% over a ten year period.

With a 17.8 billion case base volume, in 10 years at a 6% compound growth, the total world volume will be 18,868 billion cases.

Right now China has about 2.7% of the world volume total. That equates in sheer numbers to 480.6 million cases.

From a 480.6 million case base, Coke (see the above link) projects a 24% ten year compound growth in China (that projection outstrips the projected industry growth in China by 10%. In other words they are banking on taking market share.)

At a 24% compound growth from a 480.6 million case base that equals a projected 595,944,000 case volume 10 years from now.

That equates to about 3.1% of the world Coca-Cola market, in 10 years vs. a 2.7% share now, if those projections become true.

What is all this nonsense about doubling the market? Daydreaming… that’s what it is…

Coke’s own words:

With developing economies and populations, this region has strong long-term potential, and we are building an exciting family of beverage brands in addition to expanding the popularity of our core brands, led by Coca-Cola. In China, for example, sales of Coca-Cola increased 6 percent.

[maui_hawaii]

Actually speaking, Asia as a whole represents 22% of global sales. Right now that equates to 3.91 billion cases.

Projections are that Asia will grow at 7% compounded over 10 years. That equates to 4.183 billion cases in Asia as a whole in 10 years.

Right now, China represents 16% of the sales in Asia.

China’s projected numbers remember are 595,944,000 cases, in 10 years.

595 million (projected) divided by 4.183 billion (projected) means that China will represent 14% of sales to Asia in 10 years vs. its 16% today.

[maui_hawaii]

If not careful percentages are misleading.

Wanna make a deal? I will give you 25% of $40 if you will give me 15% of $100....

[AIG]

At a 24% compound growth from a 480.6 million case base that equals a projected 595,944,000 case volume 10 years from now.

Your math is wrong. At a 24% compound growth rate, 480.6 mil. cases today will be 4.1 bil. cases in 10 years, which is a 10-fold increase in case volume:

Future value = 480.6 mil. * (1 + 0.24)^10 = 4,130 mil., or 4.1 bil. cases

Secondly, you calculated Coke's worldwide volume 10 years from now incorrectly. At a 6% compound growth rate, Coke's worldwide case volume will be:

FV = 17.8 bil. * (1 + 0.06)^10 = 31.9 bil. cases

So Coke's worldwide volume in 10 years will be 31.9 bil. cases, of which 4.1 bil. or 13% will come from China.

To go from 2.7% of Coke's worldwide volume today to 13% in just 10 years is extremely impressive. The reason why China will grow so fast is because, according to your link, China's per-capita consumption of Coke today is the lowest of any region in the world where Coke does business. Simply stated, China's low per-capita consumption today is why China has the most growth potential for Coke and why Coke and other companies are as excited as they are about China.

[AIG]

The 24% is a compound annual growth rate, meaning Coke expects to increase its sales in China by 24% every year for the next 10 years. It doesn't mean that Coke's sales in China will just be 24% higher ten years from now from what they are today.

[AIG]

I don't know where you got the 22% figure for Asia, so I'll just use the 17% you gave before. 17% of Coke's current 17.8 bil. volume is 3.026 bil. As you said, Coke expects its Asia sales to increase by 7% (per year) over the next 10 years. So in 10 years, Coke's Asia case volume will be 5.95 bil (3.026 bil. * (1 + 0.07)^10 = 5.95 bil.).

But as I calculated in my previous post, in 10 years years, Coke's China case volume will be 4.1 bil. China's 4.1 bil. divided by Asia's 5.95 bil. case volume in 10 years = 69%. So in 10 years, Coke expects China alone to account for 69% of Asia's total case volume, up from just 16% today!!!!