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More Factory Work Means Gains for Made-in, Sold-in China

Stocks in this article: HMC WHR KFT AAPL GPS

New export orders and "new business inflows" contributed to the November PMI gain, the investment bank says. HSBC also cites the end of a destocking cycle.

More significant for foreign companies invested in China, however, would be HSBC's fourth reason: domestic consumer spending . This official economic development goal enshrined in the 2011-2015 Five-Year Plan and repeated at the national Communist Party congress this month is stoking demand for stuff produced by the factories.

A flow of goods from foreign-invested factories directly to Chinese consumers would benefit companies already rooted in Chinese industrial parks with existing domestic sales channels. In the case of expensive, breakable stuff with moving parts, consumers also look for local after-sales service and local (or global) product warranties.

Chinese consumers with enough money prefer foreign-made stuff, especially pricier items such as cars, electronics and handbags. Items from Europe, Japan, South Korea and the United States are seen as longer-lasting and offering higher status.

Among the numerous examples of listed multinational corporations with vibrant China sales networks are Kraft Foods (KFT), which opened a factory last year near Shanghai to make stuff expressly for the local market. Chinese shoppers are partial to Oreo, Chips Ahoy, and Uguan snacks, Kraft said in a news release to mark the factory opening. The plant with an investment of $8 million is one of Kraft's two China factories. It's got 250 offices around the nation as well.

A better-known case is Apple (AAPL), which contracts Taiwan-based Foxconn Technology (which trades under 2317.TW) to make iPhones and iPads in China. Despite labor issues, a riot and a mysterious rash of suicides at Foxconn plants in the past two years, its deal with Apple is clearly paying off through the Silicon Valley icon's wildly popular (to wit, lining up) China sales network.

Says Bryan Batson, president of China Business Group consultancy in the United States: "Items that become associated with status are just super-hot and the demand will continue to grow." Not much can out-heat an Apple device. He notes that 15% of Apple's revenue came from China this fiscal year, up from 12% last year and 2% in 2009.

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