Similar to America in the 1960s, China is following a long term path to building an economy which, before the end of this decade, is expected to become the largest economy in the world. Foreign investors have a unique opportunity to participate in China’s future growth which is under-pinned by some unique fundamentals, including the following:
Domestic Consumption
China’s economy today is driven by domestic consumption. China is the world’s largest market for online retail and now represents more than 30% of the global market in luxury goods, automotive, consumer appliances, mobile phones, and spirits. In 2021, local consumption contributed over 90% of GDP growth. Chinese consumer discretionary spending has doubled since 2010 and is set to double again in the next 10 years to reach US$12.7 trillion, approximately the same as American consumers spend today. In addition, with household savings rates increasing during the Covid pandemic, there is increasing pent-up domestic demand which is likely to have an impact in 2022. Retail sales are already predicted to grow by at least 6% this year.
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Innovation and R&D
China invests more money in innovation (USD60 billion) than any other country in the world and is already becoming a global leader in high value manufacturing, healthcare, environmental protection, e-commerce and advanced technology (e.g. AI, robotics, biotech etc.). China’s spending on R&D increased 10.3% in 2020 to USD378 billion, accounting for 2.4% of GDP, and is set to increase by more than 7% per year between now and 2025.Urbanisation and Infrastructure Over the last 30 years, half a billion people have moved from the countryside to an urban centre, a rural-to-urban migration story which has no parallel in modern history. China’s long term plan is to be nearly 80% urbanised which means that the future demand for commodities (cement, aluminium, coal etc.) seems assured, and new ‘mega-cities’ with a population of 10 million or more will emerge, currently standing at six (Shanghai, Guangzhou, Beijing, Shenzhen, Tianjin, Chengdu). The nine cities that make up the Pearl River Delta in southern China are already being integrated with Hong Kong and Macau via new roads, sea bridges, high speed rail and 5G connectivity to make up the new ‘Greater Bay Area’, predicted to become ‘the largest unified urban area in human history’.Privatisation and Entrepreneurship Whilst less than 30% of Chinese companies are privately owned, the private sector will be the dominant driver of China’s future economic growth, contributing 60% of China’s GDP, 70% of innovation and 80% of employment in urban areas. China is ‘modernising’. It’s not ‘westernising’. Investors must take a fresh, proactive and open-minded approach to investing in China, and resist the temptation to make decisions based on knowledge and experience gained in more developed markets. |
ISSUE 4:FIVE REASONS TO INVEST IN CHINA
By guest writer: David Thomas, China Expert
Source: China Invest
