3 reasons to be watch these companies’ moves into China

‘China’ is a word that has become almost synonymous with ‘iron ore’ and ‘cheap manufacturing’ during that nation’s explosive growth over the past several decades. Certainly for Australian investors, continued growth in China has been key to driving earnings in their mining portfolios, with China consuming a significant amount of southeast Asia’s copper and coal (among others) output.

However overall Chinese growth is now slowing and the increased relative wealth of its population will drive a number of new spending trends in the world’s second largest economy.

China has largely completed its evolution into a middle class, urban economy, which brings other challenges and opportunities for the savvy investor. Roughly 50% of the Chinese population now lives in urban areas, and 59% of these urban dwellers earn a ‘middle class’ wage. In any culture, as material prosperity increases people start to use their extra money to both buy more stuff and to buy things that they previously could not afford, like meat and proper healthcare.

Apart from Oroton Group (ASX: ORL), Australia is unfortunately not known for its marquee names in fashion, consumer technology or car manufacturing, which limits an investor’s ability to capitalise on increasing Chinese spending in these sectors. We do have a stellar line-up of healthcare companies however, which are perfectly positioned to capitalise on a number of key facts:

1.  The Chinese population is ageing rapidly

With a birth rate of 1.18 children per woman, the Chinese population is actually not reproducing fast enough to maintain its current levels. Even if birth controls are relaxed, I expect to see a greater proportion of the population growing old, with all that that implies about growing healthcare requirements. This provides an opportunity for companies like Prana Biotechnology (ASX: PBT) which is developing an anti-Alzheimer’s drug, and Life Healthcare (ASX: LHC) which distributes a wide variety of healthcare devices.

2.  Individual Chinese wealth is improving

As I mentioned before, more and more of the Chinese population are earning middle class and upper-middle class incomes, and this number will only increase. With these changes will come an increase in treatments for all healthcare ailments that previously were not affordable — things like cancer treatments, hip/knee replacements, surgeries, dentistry and even cosmetic procedures. As more people seek treatment it is likely that the number of hospital beds required will increase too, creating opportunities for companies like Ramsay Healthcare (ASX: RHC), Sirtex (ASX: SRX) and Primary Healthcare (ASX: PRY).

3. China has very poor air quality

Owing to the vast amounts of Chinese manufacturing, dependence on coal power and lack (or evasion) of emission controls, China has very poor air quality and many urban centres are perpetually smog-covered. I expect this will cause a number of respiratory problems, particularly when combined with an ageing population. Enter Fisher and Paykel Healthcare (ASX: FPH), oxygen mask manufacturer extraordinaire, which recently flagged an increase in production due to higher anticipated global demand.

Foolish takeaway

None of these companies have yet made sizeable forays into the Chinese market, and of course there are a number of barriers to doing so. However with China rapidly increasing its number of free trade zones, an entry by foreign investors could become an increasingly viable option. China at large is much more than just a mining story and a number of Australian companies are perfectly positioned to benefit. I would recommend investors keep an eye out for any Australian company that looks to try its luck in China – I know I will be.

BRAND NEW: #1 ASX Tech Stock for 2014 - FREE!

This ASX tech stock is ON FIRE, with the shares gaining 700% just since 2012. But the massive gains may just be beginning, says one top stock picker. You can get all the details now, free, in our brand-new investment report, "Joe Magyer's #1 ASX Tech Stock for 2014." Simply click here, it's FREE!

Motley Fool contributor Sean O’Neill doesn’t own shares in any company listed in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.