[Viewpoint] New paradigm for China business

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[Viewpoint] New paradigm for China business

Blue chips, as stock analysts call them, have a reputation for being reliable and continuing to grow in good times and bad.

One such blue chip in Korea is fashion and apparel company Basic House, whose stock was traded at 1,170 won in 2008 and is now priced at 24,000 won ($22.20) - a 20-fold increase.

The reason for such thriving business cannot be found in Korea because other stocks in the same industry rose by only 30 to 50 percent in the same period.

The key to such success is China.

In the last few years, Basic House’s sales in China grew by an average of 50 percent every year.

In 2004, Basic House opened its first store in Shanghai and now there are more than 800 stores all over China. And it’s the revenue from these Chinese outlets that is prompting the stock price to increase.

Basic House is not the only company enjoying brisk business in China. A large portion of revenue from Able C&C and Cosmax have come from the Chinese market and their stocks have also gone up. Other companies with a major presence in China, such as Amore Pacific, Doosan Infracore, Orion and Lock&Lock, are also doing well.

But Basic House is garnering special attention because it is advancing into the capital market and is in the process of getting its stock listed on the Hong Kong Stock Exchange. Last year it chose Goldman Sachs to be its underwriter for its Hong Kong IPO.

The case of Basic House illustrates a paradigm shift in business in China. Since China opened up its market to Korea in 1992, the first paradigm of economic cooperation was focused on manufacturing. Many companies moved their manufacturing plants to China and produced goods by hiring inexpensive local labor.

The 2000s were a period of product exchange. As China joined the World Trade Organization in 2001 and Chinese consumers had increased purchasing power, Korean products began to sell and spread.

In this decade, a new and obvious paradigm is capital exchange. Korean investors are investing in the Chinese stock market through China funds. And Chinese capital investment is also flowing into the stock market in Seoul to the tune of 1 trillion won last year alone.

Chinese companies are also getting listed in the Korean stock exchange, with 15 Chinese stocks being traded in Korea already. But there is still no Korean companies being traded in the Chinese exchange.

But Basic House is knocking on the door. If Basic House succeeds in China, it could start manufacturing apparel in China and selling it to Chinese consumers. It will be a complete model of localization for Korean companies.

All this coincides with the direction of China’s economic development. Beijing made it clear in its 12th five-year plan, which began this year, that it intends to make consumption the engine of economic growth.

And it has announced various measures to boost domestic consumption and reform the system to help foster the growth of the capital market.

By 2020, China wants to make Shanghai the biggest and most comprehensive financial city in Asia.

Naturally, our perspective has to change as well. When economic exchanges were mainly made in the manufacturing stage, the important question was how cheap can production get. When product exchange was the main economic concern, establishing a domestic consumption network was the most urgent concern.

Now that capital exchange has begun in full, we are faced with other tasks.

We need to study the organization of the Chinese capital market, the tendency of Chinese investors, what kind of advantages Korean companies have and how to penetrate into the Chinese market. A new business challenge in Korea has begun.

*The writer is the deputy director of the China Institute of the JoongAng Ilbo.

By Han Woo-duk
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