Leaders Forum: Seven, Crown upbeat about China growth

Ryan Stokes and Robert Rankin have talked up the prospects of China’s economy despite the recent slump in growth rates.

Seven Group Holdings chief executive Ryan Stokes and Crown Resorts chairman Robert Rankin have talked up the prospects of the Chinese economy despite the recent slump in growth rates, which have slashed the profits of their companies.

The Seven Group — which includes Westrac Caterpillar dealerships, Coates Hire and a 41 per cent stake in Seven West Media — recently reported a 90 per cent drop in first-half profit.

Westrac is one of the largest suppliers of Caterpillar products in China, while Seven Group also has a holding in the Agricultural Bank of China.

Mr Stokes said excavator sales in China had been slowing for several years.

“Excavators are like the Swiss Army knife of construction and we have seen that whole industry come down,’’ he told The Australian and Deutsche Bank’s Business Leaders Forum in Perth yesterday.

But he said it was not a surprise given the record levels of activity during the rapid expansion phase of the Chinese economy.

“It is not something we are concerned about. It is starting to flatten and we are seeing some signs of that,’’ he said, noting Seven was also seeing the transition to a consumer-driven economy through box office sales in China and tourism.

“This is only the beginning of that opportunity from our economic perspective.’’

The iron ore price has lifted 40 per cent from the record low touched in December. Earlier this week it jumped 19 per cent in a day. The rise followed announcements in China over the weekend about official plans to boost growth in the world’s second-largest economy, including a pledge from Chinese Premier Li Keqiang to spend 800 billion yuan ($164.3bn) on railway construction.

But miners have warned that the price rebound was likely to be short-lived.

Mr Stokes said other parts of the Chinese economy were growing strongly, such as the investment in data centres, which had been “phenomenal’’.

“(China) is still a huge economic force,’’ he said.

The Hong Kong-based Mr Rankin, whose Crown Resorts has an exposure to the Chinese economy through its 33 per cent stake in the Asian gaming group Melco Crown Entertainment, said he also had great confidence in its prospects.

“There are parts of the economy that are doing very well where investment is very productive around consumption, e-commerce, which is the right long-term growth. And there are parts going through severe structural change, which is a good thing in the long run,’’ he said.

He said in cities like Shenzhen and Guangzhou “you’ve got incredibly vibrancy, buoyancy and growth”.

“So this is a complex economy on a huge scale that varies dramatically by city, dramatically by industry and dramatically by geography,’’ he said.

Deutsche Bank Australia and New Zealand chief Michael Ormaechea said in an earlier speech to the forum that the commodity prices achieved earlier this decade would not be repeated.

But he said the 2016 downturn was nothing like the global financial crisis of 2008.

“2016 relates to business model challengers, realising we are now in a different operating environment where business models need to evolve,’’ he said.

“The dial needs to shift away from how cheaply we produce to how smart we produce.’’