Mon, Oct 06, 2003 page10

• China's growth not likely to help European firms

  • AFP
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  Market positions held by European companies in China are too small for the firms to fully benefit from strong economic growth forecast there this year and next, analysts say.

  China is emerging as a major locomotive for global growth, with its economy tipped to expand by a robust 8 percent this year and slightly better next year.

  The US economy remains fragile meanwhile, and that of the EU even more uncertain.

  But "for the time being, European businesses' part in Chinese economic activity is very small. It is still a bit early for growth in the region to have an impact" on their results, says Jean-Noel Vieille, research director at the Aurel Leven brokerage.

  Among the French firms that have a foothold in the Chinese market are the telecommunications equipment company Wavecom and smart-card makers Oberthur and Gemplus.

  But aside from these "very particular cases ... the US growth on which we are counting is a much stronger factor" in judging short-term prospects for European firms, he adds.

  China's rise among the global economic giants will nonetheless make itself felt soon.

  "China's passage from a production zone to a consumer country will help provide fuel for the global economy," says Alain Bokobza, strategy head at Societe Generale Equity Research.

  Chinese consumers will not see their buying power increase much however as long as the yuan remains undervalued owing to its indexation to the dollar.

  Great disparities also exist between economically active coastal areas and underdeveloped interior regions.

  "While there is definitely a new dawn in China, per capita gross domestic product remains very low," notes Huges de Montvalon, director of economic studies at Oddo Securities.

  Some even insist that China is dangerous for certain western companies.

  "Most of those have only one or two big clients, and when problems arise they suffer greatly," says Vieille of Aurel Leven.

  Wavecom, which makes 70 percent of its sales in China, has been subject to the fortunes of its clients there.

  A profit warning early this year linked to increased competition and an overdue drawdown of Chinese stocks pushed the company's shares down by 45 percent in less than a month.

  On the other hand, after announcing a contract with Legend, the Chinese maker of computers and mobile telephones, Wavecom shares surged more than 22 percent over an equivalent time span.

  Another pitfall is that "China is a country where the banking system is full of bad debts," and its market could prove disappointing next year, warns Bokobza of Societe Generale.

  Some brokers are nonetheless advising clients to invest now in issues that will benefit from growth in the region, especially given an anticipated boost from a nascent Japanese rebound.

  "European stock markets would be well advised to focus more on European companies present in Asia and Japan," say Francois-Xavier Chevallier and Stephane Malvert of CIC Securities in a research note.

  Their brokerage singles out technology, industrial and distribution issues in particular.

  Among those poised to profit from the Asian recovery according to CIC are Air Liquide, Alcatel, AXA, BMW, Bouygues, Carrefour, Casino, Christian Dior, Danone, Highwave Optical, HSBC, Lafarge, LVMH, Peugeot, Renault-Nissan, Saint-Gobain, Schneider, Siemens and Volkswagen.
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