After two years carrying the global economy on its back, China's economy is starting to slow. Auto sales growth slowed dramatically in April, and while China fights to bring inflation under control, it recently allowed electricity rates to rise in response to power producers complaining that high coal prices were limiting their ability to turn a profit as electricity demand grows.
This is bad news for General Motors
China sees the same rising prices we do here, but there have been signs that China's struggles with inflation are more painful. Last month, Chinese regulators fined Unilever
Then there is the unbelievably sad story of a businessman in Inner Mongolia who took his own life, because he could no longer afford to service the debt taken on to grow his business. Every business cycle claims businesses that over-leverage when things are going well, but paying back debt becomes doubly hard when faced with price caps.
The news isn't all bad
Even with all the bad news, China is still looking at 9% GDP growth or better this year, and targeting long-term growth of 7%. This might be why some firms don't seem very concerned. Coca-Cola
Metal and mineral giant Rio Tinto
New winners in a changing market
I'm not quite as optimistic on Rio Tinto's prospects for the next couple of years, because the government is doing all it can to slow down the housing market and banks are starting to pull back on the loans that have funded the infrastructure boom. I do, however, see a bright future for Coca-Cola, Unilever, and other consumer goods firms in China. Inflation might bite in the short term, but the steps being taken to slow the economy should slow inflation, too. With plenty of savings in their bank accounts, a government pushing consumer spending growth, and increasingly robust infrastructure, consumer spending in China's cities is well-positioned to grow.
As we've done the past few years, the Motley Fool Global Gains team is heading to China in a few weeks; we'll be focused on the best opportunities to capture the growth in Chinese consumer spending. Our focus will be on domestic opportunities, but we'll also be looking for U.S., European, and Japanese firms making underappreciated progress in China. Get all of our dispatches in real time from the field by signing up with your email address in the box below.
Nathan is the co-advisor of Motley Fool Global Gains. He owns shares of Coca-Cola. Motley Fool newsletter services have recommended buying shares of General Motors, Coca-Cola, and Unilever. We Fools may not 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.