Why Apple's the Best Way to Invest in Chinese Growth

The following video is part of our "Motley Fool Conversations" series, in which Motley Fool senior technology analyst Eric Bleeker and chief technology officer Jeremy Phillips discuss emerging trends in technology.

In today's edition, Jeremy and Eric look at just how much greater China is contributing to Apple's sales -- $8.8 billion in the past nine months alone -- and the reasons there's still a long runway of growth left. Finally, the two look at why Apple is profiting from the market while other American tech companies have struggled to find meaningful profits in the country.

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Both Eric Bleeker and Jeremy Phillips own shares of NVIDIA. The Motley Fool owns shares of IBM, Google, Apple, China Mobile, Intel, and Microsoft and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Apple, Google, Intel, Baidu, China Mobile, NVIDIA, SINA, and Microsoft, creating bull call spread positions in Apple and Microsoft, creating a diagonal call position in Intel, and writing puts in NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On September 28, 2011, at 1:25 AM, wabibi wrote:

    Apple store in Hong Kong opened last Saturday. Mob stayed in lines camping out to buy the authorized official Apple. The same applies to the Shanghai store that is opening up this Friday. While recent tradings mostly reflects market concern of the 25% drop of iPad production part orders, the real focus really should be Apple's potential sales increase in the coming years now that the Chinese market officially opens.

    The fact is value of mobile phones is totally different in China. It is a symbol of status, and as mentioned in the news below, general public - the average Chinese making less than $300 buy phones that are a few times their salaries. Mobile phones to them are almost like cars to us. I honestly think the worry towards fake Apple products is unnecessary. Apple products are not softwares that can be downloaded/pirated. The wealthy Chinese knows the difference and where to buy the real ones, while the average Chinese who crave the status would be more likely to invest their few months salary for a real iphone with warranty when they know there is an official Apple store around.

    Kentucky Fried Chicken "Symbol: YUM" is the perfect example. Having worked in China, I have seen a lot of locals loving KFC and to them it's not really fast food but tasty American food that is luxury. Average workforce who makes $200 bucks would be getting together to buy KFC often despite the high price as compared to local food. (McDonalds did not draw the same attention as KFC) YUM's price history for the last decade is solid example of an American product that can penetrate core Chinese market.

  • Report this Comment On September 28, 2011, at 1:35 AM, TMFRhino wrote:

    Thanks for the additional insight wabibi. Very nice to see comments from people directly in the market.



  • Report this Comment On September 28, 2011, at 1:50 AM, wabibi wrote:
  • Report this Comment On September 28, 2011, at 1:50 AM, wabibi wrote:

    My pleasure.

  • Report this Comment On September 28, 2011, at 1:39 PM, pytsip wrote:

    As wabibi said, having an iphone in China is a status symbol. It's also all about understanding the cultural differences between Chinese and American consumers. In China, their basis of everything is centered around the idea of "losing face." In layman's terms, it basically means that you do not want to do anything to anyone to cause them embarrassment and you don't want to experience embarrassment either. The entire idea of adoption of a product in China is centered around this idea, which again, is why Coach, Versace, Prada, BMW, Mercedes and other luxury products are so prominent in the country. Once one Chinese person has adopted the new product, the adoption rate is much much faster than it is in the United States because the Chinese do not want to "lose face" over not having that new, popular product. With that being said, it will be much harder for Apple to sell the iPhone 4 once the iPhone 5 is introduced to the Chinese because to have the iPhone 4 (as was when I was there and having an iphone 3g) it will be seen as a "losing face" situation.

    However, I believe you are right on the money when saying that Apple is the way to invest in the growth of the Chinese market as long as Apple continues to be a leader in innovation and holds itself as a luxury product within the Chinese market.

    Also, in regards to the black market, Apple will not have to fear it because of the ability to recognize the fakes. Despite there being plenty of outlets to buy fake Prada, Coach and LV handbags, those companies still have huge successes in China because it is easily distinguishable between the fakes and the real ones, the same with what we called "uPhone". I don't think this will be the issue ever with Apple, the only issue that I would withdraw stocks from Apple is if they discontinued to bring new innovative ideas to the Chinese market and if their competition was able to eventually get a competitive advantage over them, which currently, does not exist within the market.

  • Report this Comment On November 21, 2011, at 8:56 PM, MHedgeFundTrader wrote:

    The Chinese essentially have an assembly line for cities which runs 24/7. They are really building a Rome a day. That’s what you would expect in a country that is attempting to bring another 400 million into the modern economy.

    What I think is true is that China is in the midst of permanently downshifting from a blistering 11%-13% annualized growth rate to a more sustainable 8%. This is a good thing, and I saw the Japanese economy go through the same teething process over four decades, first growing at 10%, then 7%, 5%, 3%, and finally bottoming out at 1%. More stability in China will lead to less volatility in the global economy. This will be welcomed with open arms by oil and copper traders whose lives have been shortened by the extreme market moves this year.

    The good news for the rest of us is that a China with a GDP today of $5.5 trillion today growing at 8% generates far more GDP growth than it did a decade ago with a $1 trillion economy growing at 10-13%. In fact, a China growing at 8% generates much more new GDP ($440 billion) that a US economy growing at 2% ($290 billion). This means that China is still a great investment for the long term.

    What if it starts to grow less than an 8% rate? Senior government officials refer to this as the “red line” below which the risk of political instability rises. No government fears its own people more than China, which refers to its “bicycle economy”; it must keep moving forward or fall over. And in China they don’t send retiring political leaders off to putter around at country clubs, they put them in front of firing squads.

    Fortunately for the health of the current leadership, they have a lot of resources to head off this worst case scenario. China currently has the largest accumulation of foreign exchange reserves in human history, some $3.2 trillion. During the 2008 crash, they implemented a $500 billion emergency stimulus package, which was three times larger than ours on a per capita GDP basis, and they had a second one on the shelf which they never had to use.

    The Mad Hedge Fund Trader

  • Report this Comment On August 14, 2012, at 10:51 PM, MHedgeFundTrader wrote:

    One of the great things about running a website with a truly global reach is that readers send me material which is nothing less than outrageous. So I had to laugh when I found in my inbox an animation of two bears discussing the hopelessly idiotic approach the US government has taken towards its trade with China over the past two decades.

    America gave away 25 million jobs, got nothing in return, with the end result that our standard of living is falling, while China’s is rising. The Chinese made this easy by devaluing their currency 50%, thus giving their exporters an unassailable price advantage. This has enabled the Middle Kingdom to buy an increasingly larger part of the US every year at knock down prices.

    The US could address this imbalance at anytime through the imposition of punitive import duties and forcing a revaluation of the Chinese Yuan. But any attempts to do so are fought off by well-financed libertarian pro business elements spouting the principals of free trade. So China laughs all the way to the bank, and the unemployment rate here ratchets ever skyward.

    The Mad Hedge Fund Trader

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