3M Co. (MMM) forecasts China sales will grow three times faster than the company’s total revenue because of demand for health and consumer products such as face masks and water filters, Chief Executive Officer Inge Thulin said.
The maker of Post-it notes, based in St. Paul, Minnesota, is targeting annual Chinese sales growth of about 15 percent over the next five years, compared with global growth of between four and six percent, Thulin said in a March 13 interview at 3M’s offices in Shanghai. China generated about 10 percent of its global revenue of $30.9 billion last year, he said.
3M is capitalizing on China’s push to increase the role of consumption in driving economic expansion as rising levels of pollution and higher labor costs force the country to reduce its reliance on exports, investment and manufacturing for growth. The government has set a target of doubling per capita incomes by 2020 from 2010 levels and emphasized improving the quality of economic growth.
“We have capitalized on infrastructure and manufacturing and now we are on safety, consumer and health care,” Thulin said.
Services industries accounted for 46.1 percent of the economy last year, with the proportion exceeding that of manufacturing industries for the first time, according to the statistics bureau. The government is seeking to increase the share to 47 percent by 2015, according to its five-year plan. In the U.S., the world’s biggest economy, services comprise about 90 percent of gross domestic product.
“If you think about it from the big mega-trends, there’s air pollution, water and food safety,” Thulin said. “There are big opportunities for us in those areas.”
3M’s shares jumped 1.9 percent to $132.27 at the close in New York yesterday, the biggest gain since Feb. 4.
China suffered from record levels of pollution last year, causing unanticipated demand for the company’s face masks, which can filter out particles less than 2.5 micrometers in diameter that are the most dangerous to health than other particulate matter. The masks sold out last December, according to Royce Hua, the head of corporate communications in China.
3M is now better prepared to deal with any potential shortages of masks, Thulin said.
“I will make sure product is available because it’s not based on running out of capacity,” he said.
While 3M plans “aggressive investments” in the consumer and health-care industries, it will continue to grow its industrial products business, said Thulin. The company has 11 manufacturing plants in China that produce everything from adhesives, tapes and filters to the Post-it sticky notes.
Chinese authorities have pledged to tackle pollution even at the expense of economic growth, which last year expanded at the slowest pace since 1999. Premier Li Keqiang earlier this month pledged to “declare war” on smog and close coal-fired furnaces.
Official data released in March showed the steepest slide in exports since the global financial crisis and the slowest growth in factory output for the January-to-February period since 2009, highlighting the challenges for Li in achieving his economic-growth target of 7.5 percent for this year.
“China has already proven they can do exports,” Thulin said. “Now you can go to domestic consumption. It will work because there are many people here and the middle class is becoming bigger and bigger and people can spend more money.”
To contact Bloomberg News staff for this story: Gregory Turk in Shanghai at email@example.com