Nestle to Porsche Say Worst Over for China’s Outlook: Economy

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Global brands from Nestle SA to Porsche AG said the worst has passed for China’s economy as wage increases and consumption in cities in the country’s interior drive sustained growth.

China is “still an amazing opportunity,” Roland Decorvet, Nestle’s Greater China chairman, said at the World Economic Forum in Dalian, China. Porsche AG’s China Chief Executive Officer Deesch Papke said the country is likely to surpass the U.S. next year as its largest market.

The comments show rising confidence that Chinese Premier Li Keqiang will sustain growth after using measures including rail spending and tax cuts to halt a two-quarter slowdown. China’s industrial production, retail sales and aggregate credit rose more than forecast in August, prompting analysts at Deutsche Bank AG and Bank of America Corp. to boost growth projections.

“China has stepped out of the bottom of this economic cycle,” said Ma Jun, chief China economist at Deutsche Bank in Hong Kong, who raised his 2014 growth forecast this week to 8.6 percent, the highest among estimates compiled by Bloomberg. “I believe the recovery will be sustained for one year or even more than one year.”

Data Releases

Ma said the producer-price index, which has declined for 18 straight months, will turn positive within six months, indicating economic growth will accelerate.

Elsewhere in Asia today, Japan releases final July industrial-production figures and Singapore reports on retail sales. Europe will see reports on Sweden’s gross domestic product and inflation in Finland and Poland. The U.S. will have data on consumer confidence, producer prices and retail sales.

Nestle spent almost 3 billion yuan ($490 million) to open two factories in mainland China this year. The Vevey, Switzerland-based foodmaker opened its second coffee extraction plant and another food factory in the world’s most populous nation this July.

“You have 350 million people who will not grow their own food and who will come into the city,” Decorvet said yesterday on the forum’s sidelines. “They have to buy food.”

Nestle’s sales in China had slowed amid rising raw-milk and wage costs and as economic growth slowed in each of the two quarters ended in June. Still, the company’s China business grew at least 10 percent in the first half, Chief Financial Officer Wan Ling Martello said in a conference call Aug. 8. Sales in Greater China more than doubled last year to 5.16 billion Swiss francs ($5.5 billion).

Inner Regions

Porsche’s Papke said sales growth in China will accelerate next year, fueled by the introduction of its Macan compact SUV and a push to expand into the inner regions of the country.

“The epicenter of the world has for many reasons moved from the U.S., across Europe and now is sitting in Asia, and China is obviously the powerhouse of Asia,” Papke said in an interview yesterday in the southern city of Foshan, where Porsche is introducing its newest Panamera cars. “We’re extremely optimistic about the success of Macan.”

Carlsberg A/S, which has stakes in 40 breweries in China, said rising incomes and urbanization will drive demand for its premium products.

“The momentum we have seen in the first half, we can continue in the second half,” Soren Ravn, who heads the brewer’s China business, said yesterday in an interview at the forum in Dalian. “After many years of urbanization, you can start to do more of a cluster strategy and go for big cities.”

Premium Demand

Sales of Carlsberg’s premium brands such as Carlsberg Light and Tuborg are growing twice as fast as its local brands, Ravn said. The brewer is “looking at opportunities available” for acquisitions in China, he said, without identifying any targets.

The optimism among automakers, food processors and brewers in China at the World Economic Forum is still tempered by the outlook for the slowest economic growth since 1990. China’s gross domestic product will still probably expand 7.5 percent this year, the slowest in more than two decades, according to the median estimate of economists surveyed by Bloomberg.

“The foundation of an economic recovery is not solid yet, with many uncertain factors,” Chinese Premier Li said in a Sept. 11 speech at the forum in Dalian.

Policy makers have signaled they will defend a 7.5 percent expansion goal for 2013 and seek to ensure a pace of 7 percent in the coming years. Li pledged reforms that will ripple throughout the financial system as Communist Party leaders prepare for a November meeting to lay out a blueprint for sustaining long-term growth.

Investing ‘Heavily’

Henkel AG, a maker of adhesives, cleaners and cosmetics, said it will invest “heavily” in China to boost sales.

Kasper Rorsted, chief executive officer of the Dusseldorf, Germany-based company, said he’s expanding the professional hair-care products lineup in China under a plan to boost sales. He spoke at the forum in Dalian yesterday.

The company is targeting a beauty and personal-care market that may grow 8.8 percent to $34.8 billion this year, according to estimates by London-based researcher Euromonitor.

“We have been and continue to be very bullish on China,” Rorsted said. The company plans to boost revenue to 20 billion euros ($27 billion) in 2016 from 16.5 billion euros last year, with half its sales coming from markets including Latin America or the Asia-Pacific region.

Company Shopping

Alliance Boots GmbH, owner of the U.K.’s largest drugstore chain, said it will seek acquisitions in China and could have as many as 5,000 pharmacies in the Asian nation in two years if it succeeds in closing enough deals.

The company may consider making some China investments jointly with U.S. drugstore operator Walgreen Co., which owns 45 percent of Alliance Boots, Executive Chairman Stefano Pessina said in an interview at the forum in Dalian this week.

Alliance Boots has 29 stores through a joint venture in mainland China, the world’s fastest-growing major pharmaceutical market. Industry sales in the nation are forecast to rise as much as 18 percent a year to about $165 billion by 2016, according to consulting firm IMS Health Inc.

“China is a big market, one of the largest in the world, and the only large market where we don’t have a very strong presence,” the 72-year-old Italian billionaire said.

The Switzerland-based company is interested in buying stakes of 20 percent to 50 percent in local pharmacy companies in China, he said. It has spoken with “most of the big companies” in the country and hopes to announce a deal “relatively soon,” Pessina said, without giving a timeframe.

— With assistance by Liza Lin, and Alexandra Ho

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