By now, even novice investors are aware of the fact that there are many fortunes to be made by investing in Australian companies with strong exposures to China.
But if you really drill down past that initial proposition, far fewer investors understand exactly what it is about certain Australian companies that put them in a position to grow their profits by expanding in the Middle Kingdom.
I say "certain Australian companies" because almost every firm with even a tangential exposure to China will play up that aspect of its business in the hope of attracting new investors.
So what exactly makes Treasury Wine Estates Ltd (ASX: TWE) one of the best ways to tap into China?
Corks not commodities
It is fair to say the mining boom is well and truly over. While China will continue to consume huge quantities of iron ore, coal, copper and oil over the coming decades, the sudden ramp up in demand that led to skyrocketing commodity prices is in the past now.
However, rapid urbanisation and job creation has created a new boom in middle class spending. The Chinese consumer has the potential to be what the US consumer has been recently, a vital cog in world economic growth.
That's why companies that are exposed to this spending are well placed. Treasury Wine Estates has a number of brands that can fill the desire for wine in China, including the Wolf Blass and Wynns ranges.
The challenge for Treasury in this market is converting a market that is traditionally more accustomed to white spirits and beer.
Premium power
Along with a burgeoning middle class, China also has thousands of another highly attractive demographic: millionaires. Food and drink is integral to Chinese culture, as is the notion of being a good host when guests and business associates come to visit.
Treasury Wine Estates has cleverly segmented its brand offering in China to ensure that its premium brand, Penfolds, can retail for up to $1,000 for a good recent vintage.
This has been done by limiting supply, which has the effect of increasing the perception of quality and prestige that attaches to the brand.
The proof is in the margins, with Treasury's Asian operations earning 30% margins, which is double what it earns in its home market of Australia. However, any widespread economic stress in China will obviously affect the wealthy, and discretionary spending will likely fall in tandem, which could impact both sales and margins.
Foolish takeaway
All of the global beverage giants are vying for a piece of the Chinese market, but if Treasury can capture just a portion of the many billions of yuan currently spent on white spirits and beer, while retaining the premium status of its upmarket brand, it will be a growth stock for many years to come.
