A View from China – Jeff Casson, Investment Director, At the Global China Conference 2020

A View from China – Jeff Casson, Investment Director, At the Global China Conference 2020

It has been five years since my last visit to Shanghai, China, and the city has significantly evolved in that time. Arriving for the Greater China Conference 2020, I was struck by the development of the city’s skyline, which is reflective of the evolution taking place in this vast country. The World’s second tallest building has now been completed here in Shanghai, but even from the commanding height of its 118th floor (632m), an observer cannot see beyond the city’s vast limits.

Despite the evident change, some things remain familiar. The Huangpu River, separating old and new Shanghai, sill bustles with river traffic carrying raw materials from one of the world’s largest shipping ports to inland China. This is testament to the wider development of China and reflects the investment and policies that continue to underpin the rapid growth of Tier 3 and 4 cities.

Whilst the recent focus of the World’s media and the stock markets has been trained upon the machinations of the US/China trade war, this is a country that has continued to develop and has turned to alternate supply chains and domestic manufacturers.

Indeed, we heard on this trip that Huawei (one of China’s largest telecom equipment suppliers), has manufactured a mobile phone that does not use any US-supplied technology. This is a significant development that could fundamentally change China’s prospects as it moves further up the value chain. More importantly, such steps will only increase the sphere of influence for Chinese companies in the region and other emerging markets.

Technology was a dominant theme of our visit. One of the fascinating discussions we attended emphasised the increasing deployment of Chinese developed technology in many developing countries, with solutions offered in hardware, mobile payments, search and eCommerce.

The deployment of such technology usurps the idea that generating such products is the reserve of developed market companies (think Google in search and Amazon in eCommerce). This goes to illustrate the strength of Chinese based technology platforms and models, and the willingness of Emerging economies to embrace Chinese technology.

This success is the result of a marked increase in Research & Development expenditure (R&D) by domestic companies. In fact, China now rivals the US in R&D spending on a Purchasing Power Parity (PPP) basis.

Greater technological prowess is only one of many changes. We are all familiar with the rapidity of China’s rise, but the following data points serve to highlight the remarkability of China’s advance.

  • In 1978, 90% of China’s population lived below the extreme poverty line, by 2014, 99% of China’s population is above the extreme poverty line.[1]
  • GDP per capita has increased from $959 to $9770 in the past 18 years.[2]
  • The Chinese consumption market was $2.3trn in 2008; today it is $7.3trn, growing 12% per annum. By contrast, the US consumption market growth over the same period has been much more pedestrian, registering rates of 3% per annum. More importantly China’s consumption market is now 43% the size of the US, up from only 10 years ago.[3]
  • China has 227 of the World’s 500 fastest supercomputers.[4]
  • In 2017 China installed 154k industrial robots. By comparison, 2nd placed Japan installed 55k in the same year.[5]
  • Shanghai will have around 14,000 base stations for 5G in 12 months, and there will be 600 million Chinese 5G users by 2025. The capabilities of 5G are not limited to merely increasing the speed of mobile internet downloads. Chinese policymakers view 5G as an enabler of other technologies, allowing manufacturing businesses to function more efficiently and increasing productivity gains through automation. There is no industry that will not be impacted by the deployment of 5G mobile technology.[6]
  • Shanghai built the giga factory with Tesla, which started production at the beginning of the year. There are 400,000 EVs registered in Shanghai.[7]

Following our trip to China there are several things that we will be discussing in the coming weeks. What will happen next after the phase one trade deal has been signed? How will policy evolve to strengthen the domestic economy? What are the opportunities presented by the opening of Chinese financial markets?

In our True Potential Portfolios China is reflected in several different ways: –

  • Allocations to Asia and Emerging Market equity is 6.5% in True Potential Portfolios or £520m.
  • Allocations to managers with specific expertise in China
  • Allocations to global fixed interest in which China’s participation will increase as the domestic market opens.

It is important to remember that this is one of many opportunities within the True Potential Portfolios, accessing these through appropriately constructed and diversified Portfolios is paramount. It is this expertise that allows our clients to do more with their money.

 

[1] Source: World  Bank

[2] Sourcs: https://fred.stlouisfed.org/series/PCAGDPCNA646NWDB

 

[3] Source: UBS Presentation

[4] Source: UBS Asset Management

[5] Source – UBS Asset Management

[6] Source – Speech by Shanghai Municipal Government – UBS Conference Shanghai

[7] Source – Speech by Shanghai Municipal Government – UBS Conference Shanghai

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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