Opening Floodgates to Retail Sector

Over the past few years since the opening of China’s door to foreign capital, the country has steadily attracted significant capital in numerous areas including industrial and high technology.

 We also began to see the emergence of some mainstream U.S. retailers in China including Wal-Mart Stores Inc. (NYSE/WMT), Kentucky Fried Chicken owned by Yum Brands Inc. (NYSE/YUM), and Starbucks Corp. (NASDAQ/SBUX).

 But, this has been only the start as the country is set to explode on the retail front. The Chinese retail sector is on a major upward trend after recently deciding to open up its retail sector in 2006 to foreign retailers. The new structure means that foreign retailers wanting to enter into China will no longer need to align themselves in a joint venture with local partners.

 The structure change should open up the floodgates for retailers into China. The growing interest in China should not be a surprise given that you have a massive middle class that is larger than the entire population of any country in the world with the exception of India. The middle class has ample money to spend and they want to spend it. Chinese consumers are also in love with foreign brands as it is a sign of quality and distinction compared to that of domestic brands, which continue to have inferior perception and are generally not as good in quality either.

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 Clearly the numbers are telling the story. So far in excess of 1,000 applications submitted by foreign retailers have been approved, according to The Shanghai Foreign Investment Commission. That is just massive for the Chinese retail landscape, which will be completely revamped and may soon begin to look like Main Street U.S.A.

 Powerhouse Wal-Mart is already in China. Other major U.S. retailers planning to get a piece of the Chinese consumer include privately held Toys “R” Us, Best Buy Co. Inc. (NYSE/BBY), and Home Depot Inc. (NYSE/HD). I believe this is only the start of the retail invasion as foreign firms scramble to set up shop in China and win consumers who have money to spend.