Billionaire Henry Sy, whose retail empire has made him the richest man in the Philippines, may build as many as three malls a year in China to expand in the first major economy to rebound from the global recession.

“We have 34 malls in the Philippines and China is a market that’s 13 times bigger” by population, said Hans Sy, president of SM Prime Holdings Inc., a unit of his father’s SM Investments Corp. SM Prime, the biggest Philippine mall operator, is spending 5.5 billion pesos ($115 million) this year in China.

SM Investments, whose 61 percent share-price gain this year beats the Philippine benchmark, is increasing capital spending for 2009 by almost a third. Expanding in China, the world’s most populous country, may help open opportunities for the family’s other businesses, said Teresita Sy-Coson, Henry Sy’s eldest child and vice-chairwoman at SM Investments.

“The malls will be an excellent outpost for the group,” said Alex Pomento, Philippine strategist at Macquarie Group Ltd. “They get a gauge of China’s consumer pulse and a springboard for the group’s other businesses.”

Henry Sy, 84, immigrated from China at the age of 12 and built the Philippines’ fourth-biggest listed company from a shoe store he started in 1948, amassing a net worth estimated by Forbes magazine at $2.7 billion.

Rice, Sardines, Soap

“China has a big consumer market, it will continue to evolve,” Henry Sy said at his Manila headquarters in a July 18 interview, which was also attended by Sy-Coson, Sio and Hans Sy. “It has improved and can do things better than other countries,” said Sy, who started selling rice, sardines and soap at his father’s Manila store in 1936.

SM Investments gained 1.6 percent to 310 pesos at the noon close in Manila trading, while SM Prime rose 2.2 percent to 9.40 pesos.

SM Investments has outpaced the 38 percent gain of the benchmark Philippine Stock Exchange Index this year. Ayala Corp., holding company of the third-richest Philippine family and owner of the nation’s third-largest mall operator, has climbed 36 percent, advancing by 2.7 percent to 285 pesos today.

SM Prime plans to open one mall annually in China starting 2010 and may accelerate that pace to as many as three yearly by 2013, Hans Sy said.

Chinese Officials

“There have been a lot of Chinese provincial officials who have visited the Philippines and they see what we are doing here and they want to replicate that,” Sy-Coson said. “Even now, there are invitations from provincial officials to go into their areas.”

Manila-based SM Investments, whose assets include the biggest Philippine bank by assets and the Southeast Asian country’s largest supermarket and department store operators, forecasts profit will grow between 12 percent and 14 percent this year, Chief Financial Officer Jose Sio said.

The company kept its target even after the Philippines cut the low end of its economic growth forecast from 3.1 percent to 0.8 percent, the weakest since 1998. Funds sent home by overseas Filipinos are sustaining consumer spending at SM-branded shops and malls, Sy-Coson said.

Remittances, which account for 10 percent of the Philippine economy, grew 2.8 percent to $6.98 billion in the first five months from a year ago. The inflows reached a record $16.4 billion in 2008, 11 times the country’s total net foreign direct investment, and is forecast to hit the same level this year.

Filipinos Working Abroad

About 20 percent of Philippine consumer spending passes through SM Investments’ malls and stores, and the company captures 33 cents of every U.S. dollar spent by families of Filipinos working abroad, Macquarie’s Pomento said.

SM Prime seeks to boost the share of its spending in China as it acquires more sites for expansion, Sio said. This year’s investment in China is 46 percent of the 12 billion pesos SM Prime will spend on expansion.

China’s $3.21 trillion economy is 22 times the Philippines’ $144 billion. China’s economic growth accelerated to 7.9 percent in the second quarter, while the Philippines slowed to 0.4 percent in the first quarter, the weakest in a decade.

“I am cautiously optimistic about the group’s expansion into China,” said Paul Joseph Garcia, who helps manage $1.25 billion as chief investment officer at ING Investment Management Ltd. in Manila. “China is a very competitive market and hard to penetrate. Even global retailers are not having it easy.”

Halloween, Pageants

SM Prime doesn’t sell retail space, preferring long-term recurring rental income to short-term gains, and will apply the same principle in China, said Hans Sy. SM Prime will focus on the mainland’s emerging cities because their development and consumers’ profiles closely resemble those at home, he added.

To draw crowds into its China malls, SM Prime hosts events to mark Valentine’s Day, Halloween and Christmas. “Little Miss SM” pageants are well received because China’s one-child policy makes it more likely that parents will dote on their children, Hans Sy said.

“The success we are having now in China is from the formula here in the Philippines,” Hans Sy said. “Whatever we do here, we do there.”

SM Investments posted record profit of 14 billion pesos last year, on growth at its shopping malls, grocers and department stores. SM Prime’s profit reached a record 6.41 billion pesos in 2008.

SM Prime, which is adding two Philippine shopping centers in 2009 after opening one in May, entered China in November 2007 after buying Henry Sy’s malls in Xiamen, Jinjiang and Chengdu for $252 million. The company will by October double the size of its Xiamen mall, which Henry Sy opened in 2001. It plans to open a shopping center in Suzhou in 2010, in Chongqing the following year and in Zibo in 2012.

Rolling out one mall a year will allow SM Prime to build up its organization, gain further familiarity with China’s market and prepare for faster expansion in 2013, said Hans Sy.

“The malls will lead the way” for the group’s expansion into China, Sy-Coson said.

To contact the reporters on this story: Ian Sayson in Manila at [email protected]; Frank Longid in Hong Kong at [email protected] ‘