Japan's investment future seen eclipsing China’s

Corporate and portfolio investors have more opportunities in Japan and investing in Japan-oriented companies than in most other parts of Asia, while the attractions in China are narrowing, says Clint Laurent, founder of Global Demographics in Hong Kong.

His firm’s data suggest the only age group in China that is growing are people aged 40 to 64. Laurent calls this cohort ‘working age empty nesters’, because their one child (possibly two) has left home, leaving them with a bit of money and leisure time. Younger age groups are going to see their numbers flatline or shrink.

Many of these empty nesters are enjoying rising incomes, as the labour force shrinks. Families with annual income of Rmb140,000 ($23,000) or more now constitute 8% of urban households. The number of these affluent empty nesters will triple over the coming decade, eventually accounting for 21% of households – or rising from 2 million people today to around 50 million.

“That’s the growth market in China,” Laurent says, noting that these consumers will spend money on travel, on ‘wellness’ (nutrition, gyms and lifestyle) and media, and companies and brands catering to these people will outperform those selling to teenagers (a group in absolute decline) or the mass elderly (rising numbers but too poor to sustain a market).

Laurent compares China to Japan and believes investment into the latter will outperform. He argues the Japanese economy may be growing slowly but that it offers sustainable opportunities.The labour force is not likely to shrink: people might be old but 21% of men over the age of 74 are working. So as people age they work longer. Moreover, these people don’t need to pay anymore to support their elders, and many earn annual salaries of $100,000 or more.

Although the growth of top-earning Chinese urban “empty nesters” looks compelling, the growth of high-earning Japanese is far greater; a similar argument holds for wealthy South Korea.

“The story of Western economic revival is more lucrative than emerging markets, and market entry for companies and investors into developed economies is far easier,” Laurent says.

He recommends investors and corporate strategists look at countries that service wealthier neighbours, offering relatively low labour costs and growth, such as Hungary for Western Europe or Mexico for the US and Canada. China, Thailand and Indonesia have served a similar role for Japan and Korea.

Among these, Laurent is the most bullish on Indonesia, not just because of its large, youthful population. He gives Indonesia plaudits for better education – a system he says is better than China’s – and sees lots of signs of rising affluence, from the introduction of credit cards to better-quality fashion imports.

“Indonesia is also turning into a potential alternative to China for manufacturing,” Laurent says. “If investment goes there, consumer incomes will go up.”

He is worried that Thailand’s workforce has peaked, so it can only continue to grow by boosting productivity – a tough challenge. Other markets in the region seem to be losing ground. Vietnam? “Not hot,” he says.

But he is the most sceptical about India. In addition to the usual observations – corruption, fickle regulation, terrible infrastructure – Laurent says the country is failing to educate its young. “That pushes wages down, not up, which means India won’t escape the poverty trap,” he says