China's New Money Migration

They poured by the tens of millions from China's small towns into its cities...

Now, with economic growth hitting the skids, throngs of laborers are heading back to their native provinces and villages, taking the attention of marketers with them.

January 2009's Lunar New Year holiday saw a steady stream of denizens heading home for the only break they usually get all year. The fast pace and hard work of eastern cities like Beijing and Shanghai are grueling, as even visitors can attest.

But this year more migrants booked one-way tickets out of town, knowing that dwindling consumption in the U.S. and other rich countries could pull the rug out from under China's millennial manufacturing juggernaut.

"I don't know if I'm going to come back," one worker told CNN at the capital city's train station. "I might just end up working on the farm."

So, smart western and local companies aren't holding their breath - they're following China's new money...

The Great Branding of China

Beijing-based Lenovo became one of the world's top computer companies after it bought IBM's PC division in 2004.

Then, in 2008, the company took advantage of center-stage marketing opportunities during the summer Olympics, giving it worldwide recognition and some separation from the old IBM brand (IBM took a 19% stake in Lenovo as part of the deal).

In a way, Lenovo made a name for itself at the same time the country established its own economic allure. China became the keystone of the BRIC emerging-market pantheon, which includes Brazil, India, and Russia.

With its best stock listed in Hong Kong (HK:0092) and with headquarters in both Beijing and North Carolina, Lenovo is a prime example of the so-called "Red Chip" best stocks that proliferated and prospered in recent years. And since foreigners can't invest in mainland China's Shanghai and Shenzhen exchanges, Hong Kong is the nearest point of entry to Asia's leading emerging market.

As the international appetite for a piece of the Chinese pie grew, the Hong Kong Stock Exchange benchmark index, the Hang Seng, tripled in value from May 2004 to its peak in October '07.

Lenovo shares are also available on the Pink Sheets under the ticket LNVGY. But since you can trade Hong Kong shares on a growing number of Internet trading sites like E-Trade, higher liquidity means the smart money is on original HK shares.

The Hang Seng's rise reflected a surge of interest and money into China's economy.

As foreign direct investment (FDI) poured into China, as well as contracts for cheaply-made tchotchkes, double-digit growth became the norm.

Now, Beijing's central planners (yep, they're still Communists, even if they're rich ones) are aiming to keep the country above 8% growth.

They also want to close the gap between rural and urban incomes, which hit a record high at the end of 2008.

Some movement of urban money back to less-populated, poorer areas could help even things out and quell official fears of large-scale rural protests.

In the meantime, FDI is flowing out of China like a draining bathtub. Foreign direct investment sunk by a full 33% from January '08 to January '09.

That calls for new movement of money within the country, as inflow can't be counted on anymore.

Lenovo Follows the Money Trail

Lenovo hopes to sell 5 million computers in the next 3 years... not in bright new urban storefronts, but out in China's hinterlands, where it is estimated that 60-80% of the country's population still lives.

They're not just pushing the same old laptops and desktops, either. Lenovo is creating 15 brand-new computer models that will be cheap and efficient.

Vice President Xia Li says the PCs will be as cheap as 3,000 yuan out of the box... That's just under 450 bucks!

My colleague Benjamin Ross researches China's money movement trends for a living. He gave me the scoop from Shanghai the other day before heading out to the famous Huangshan Mountain:

"These days, people in rural areas are getting richer and richer... due in large part to family members working in cities and kicking money back to relatives in the home village."

But Benjamin adds emphatically the new moneyed classes of China's big cities, and even plenty of the workers who call the countryside home, are sticking out the global recession in eastern metropolises.

Wherever they are, individual Chinese consumers are now the brightest blips on every company's radar.

That's not only smart strategy; it's necessity. Lenovo is currently the world's #4 PC maker, and it expected to gain ground, not lose it, after the IBM acquisition.

But the worldwide recession already took a bite out of Lenovo with a precipitous drop in corporate PC sales.

That led to the resignation of CEO William Amelio in February and partially explains the shift in emphasis to rural markets.

New management and new markets mean opportunity for long-term Lenovo investors. We'll be keeping an eye on the outcome of Lenovo's rural marketing, hoping for an upside surprise as fresh earnings roll in to a beaten-down market.

Another factor working in Lenovo's favor is a top "Green Ranking" compared to other electronics makers. China's national policy and market demands are pushing Lenovo and other firms to energy efficiency and smart growth.

At Green Chip International, we've prepared a full report on just how much money and effort is going into making China a bastion of healthy growth in a shrinking global economy. The numbers will amaze you.