I often travel between Hong Kong and the mainland. No matter whether it be on business trips or on holiday, I notice that more and more Hong Kongers and mainlanders are on the road enjoying automobile trips across provinces like Jiangsu and Zhejiang, especially around Suzhou and Hangzhou. Plenty of premium cars - Mercedes-Benz, BMW, Ferrari and Lamborghini - are seen parked outside golf courses. Driving through the provinces, feasting on the gorgeous scenery is a pleasure for me. But what also is on my mind is that the power of consumers is growing more and more robust. With rapid economic growth, the wealth of China is accumulating quickly and so is consumption. Increasing household income is clearly one reason, but the primary factor is the emergence of markets.

In the past, the Chinese sold manpower. The value of manpower supplied by different people was more or less the same. Those who worked harder might earn a little more, but incomes were far lower than those brought about by marketization. China has plenty of resources. A farmer who discovers a coal mine may find it worthless, but a coal miner can buy it and raise money on the stock market. The marketization of the coal mine then generates huge wealth. Injecting mining resources into listed companies is another example. Painting was not worth money in the past. When it became an art, that was another story. One can have a delicious meal for a small amount of money. But when preparation becomes a craft, it can be much more expensive.

What triggered such a huge change? In short, many Chinese have become wealthy. They have strong consumption power and look to improve their living standard. Even though the overall per capita income is still low, high earners push up the luxury goods market and the whole service industry as well.

It is difficult to push up China's fixed asset investment since it already is high, so consumption is becoming more important as an engine for growth. The country's consumption-to-GDP ratio is still low, and still has plenty of room for improvement. The Chinese government has launched many measures to boost consumption. Stimulating the auto industry is one. Another is Shenzhen's growth enterprise market, or GEM. According to the Chinese Academy of Social Sciences, the middle classes now constitute 23 percent of the total population and are growing by 1 percentage point a year. Salary reform and urbanization help broaden consumption.

China is moving fast, from the world's factory to the world's market, from Great Wall to Great Mall. Those who know the behavior can grasp opportunities and win in this competitive market. If you don't have that kind of expertise, better ask your fund manager to invest your money in consumption, properties or financial stocks, so as to enjoy the golden years of the country's consumption boom.

Paul Pong is the founder and managing director of Pegasus Fund Managers. Opinions expressed are entirely his own.

(HK Edition 03/27/2010 page2)