Alternative reality on the Chinese economy

HONG KONG - China's official data isn't always helpful. But the earnings statements of foreign multinationals give a good alternative reality check on the Chinese economy. Leaf through recent numbers from those with big businesses in the People's Republic, such as Yum Brands, Siemens or Moet Hennessy-Louis Vuitton, and three trends emerge. Consumer companies tell a tale of rising prices. Yum, the parent group of Kentucky Fried Chicken, is just one struggling to pass through rising costs to Chinese customers. Same-store sales rose by 21 per cent in the fourth quarter, but food, wages and rent hikes helped drag down margins to 16 per cent from 18 per cent a year earlier. Yum plans to raise prices again in 2012, after a small 2 per cent increase in September. So much for inflation being under control. Heavy industrials, meanwhile, convey slowing investment. Siemens, which supplies machinery to manufacturers, reported a 16 per cent decline in new Chinese orders in the last quarter of 2012, measured year on year. Power company Eaton Corp singled out China as one factor behind its own missed sales targets. Foreign suppliers feel the pinch early when manufacturers start running down stocks instead of increasing production. Then there are the luxury firms. For them life is great, showing that even if the economy is slowing, the rich and powerful are doing fine. That's bad for China's rising wealth gap and its fight against corruption, both of which fuel social tensions that threaten steady growth. Richemont, which owns Cartier, and LVMH both enthused about Chinese demand in their quarterly statements. They are also the top brands for Chinese millionaires buying gifts, according to the Hurun report. It's not all bleak. Richemont's sales in Europe, which rose 16 per cent year on year, were driven in part by Chinese tourists. They bought $7.2 billion of luxury goods abroad during the lunar New Year break, according to the World Luxury Association. Those don't officially count as imports - yet if they did, they would almost balance the estimated $10 billion trade surplus for January. It's some comfort that China is consuming, even if not always at home. Context news Yum Brands, the U.S. parent of Kentucky Fried Chicken, said on Feb 6 that sales at established restaurants in China grew by 21 per cent during the fourth quarter of 2012, measured year on year. Operating profits grew 15 per cent in China over the same period, after Yum increased prices by 2 per cent in September. Siemens, the German engineering group, reported a 16 per cent decline in new Chinese orders in the last three months of 2012, and said it had witnessed a "marked slowdown in short cycle businesses" in China, particularly in industrial automation. 3M, the U.S. industrials group, said it anticipates continued below-trend growth in China in the first half of 2012. Another global manufacturer, Eaton Corp, singled out China as one of several factors that caused it to miss sales targets for the year. Richemont, the maker of Cartier jewellery and IWC watches, said in January that sales in Europe rose 16 per cent year on year in the fourth quarter of 2012, driven by Chinese tourists purchasing the group's goods whilst abroad. Chinese consumers bought $7.2 billion luxury goods abroad during the lunar New Year festival, up 29 per cent from the same period a year earlier, according to World Luxury Association. That accounted for a third of global luxury goods sales during that period, or 62 per cent of the sales in Europe and 28 per cent of the sales in North America.