Wow. The two responses so far kind of missed what I believe John is asking, namely if China is a bubble when it comes to its own securities market. There is no question the Chinese economy in and of itself has obvious signs of bubble, whether their securities industry is the byproduct of this very bubble is a fair question to ask. I believe the answer is somewhat nuanced. There is no question when it comes to access control and fire, a huge part of the demand comes from the boom in residential construction; and the video from 60 minutes shows plenty of examples of a bubble in that sector of the Chinese economy. So if and when that bubble bursts, you have to ask yourself just how many of the companies riding that boom will be standing.
When it comes to video surveillance, the real demand comes from all aspect of the government. Let's not forget China is an authoritarian state, by that definition, it is paranoid about security. If you look at the biggest and fastest growing companies in Chinese security, companies like Hikvision, Dahua, Dali, Bluestar and so on, they are all on the receiving end of that massive growth. And of all of those companies have one thing in common, whilst they would like to pursue more sales outside of China, their real focus for the past 5 years and near term will still be inside China, where they get almost 90% of their revenue. Not only China is their biggest source of revenue, it is also where they find the fastest growth. Unless there is some massive change in the political climate in China, video surveillance will continue to grow strongly.
The massive growth in video surveillance demand inside China has created a strange split very few people outside China understands. Due to the massive size and complexity of some of these projects inside China (9 figure projects are common), companies like Hikvision has enjoyed massive profits. This has enabled them to reinvest in engineering and products and fast climbing the value chain, all the while left the export oriented companies (mostly from Shenzhen) wither and die due to the fact they mostly compete on price. To put it simply, it would be a grave mistake for us to lump all Chinese securities companies together. Yes, Shenzhen based companies mostly sell on little or no value added analog products that competes strictly on price, and these are the companies you constantly get spammed on. But these are fast dying companies because of rising labor costs and the increasingly expensive Chinese currency. The irony is, companies like Hikvision and others actually develop and manufacture some of the more advanced surveillance products but only sell them inside China. Sure, a lot of people would like to believe all of these guys are good at just making some tin cans and sell them cheap, that is simply not the case.
Hangzhou,where Hikvision, Dahua, Dali and several other significant security companies are based probably has more than 10,000 engineers working on video surveillance products. This is perhaps the largest hub of security surveillance in the world. The average salary of these engineers are already at $3,000 a month. You simply cannot be selling cheap crap at no margin to sustain this kind of hub. If anything, Hangzhou is fast turning into the Silicon Valley of security surveillance. For now, due to disparity in user work flow and infrastructure, you are seeing products that are clearly mismatched for US markets. But with their massive engineering base and healthy corporate cash hoard, I fear in the coming years China won't be competing in price but in sophistication instead.
In my mind, China is neither hype or hope for surveillance; depending on your place in the industry, you might need to worry, a lot.