Asia Weekly

Postcard from Asia

Week Ended: February 19, 2010

During my recent trip to Asia, I visited companies in Beijing, Shenzhen, Taipei and Seoul, and was pleasantly surprised by the relative confidence in the business mood. Management teams I met with, including those in the Internet and nuclear power industries, seemed optimistic about their fundamentals and future business opportunities in the global market. In fact, technology firms I visited in China and Taiwan were upbeat about their operations thus far this year, especially considering that the first quarter of the year is typically a seasonally weak period for technology companies.

One new trend I noticed that signals the rising wealth of Chinese consumers is the increased sales of digital single lens reflex (SLR) cameras. Considered discretionary items, these cameras are becoming more popular in China’s major cities. Overall, inventory levels for technology firms remained healthy in most countries in the region, and technology demand is still recovering with China leading the way. Whether sales during this week's Lunar New Year period are brisk or slow can set the tone for technology companies in the region for the short term. However, the real test of the business climate should come after the New Year holiday, during which there is typically higher consumer demand in China.

On this trip, I met with managers at several Chinese Internet companies who mentioned that they were puzzled by Google’s recent threat to exit China unless the Chinese government agreed to stop censorship of its Chinese-language search. (Google has since softened its stance.) Managers I spoke with likened Google’s demand to a Chinese company asking the U.S. government to alter regulations so it may better compete in the U.S. The recent controversy has not won much praise among Google’s local rivals, and Google’s China clients may also be wary of the consequences of the recent incident.

While in Seoul, I met with nuclear power companies involved in the South Korean consortium that made headlines at the end of last year for winning a landmark contract to build nuclear plants in the United Arab Emirates. It beat out French and U.S. industry giants to secure Korea’s first nuclear project abroad, estimated at US$20 billion. (In addition to France and the U.S., the global nuclear business has also been dominated by Japanese and Russian firms.) Managers I spoke with cited Korea’s key competitive advantages to be lower costs and a faster turnaround time. They also emphasized that Korea has a strong 30-year track record of building domestic nuclear plants. The contract may bode well for Korea’s future in developing nuclear power plants globally.

To be sure, risks to the region still remain, and we will continue to monitor the business environment as governments around the world wind down recent stimulus spending.

Michael Oh
Portfolio Manager
Matthews International Capital Management, LLC

As of 12/31/2009, Matthews Asia Funds held no positions in Google Inc.

 

 

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The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information.