Your Quarterly E-Zine
Edition 11 • December 2019

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FINE CHINA

Over the past few years the markets have focused on China’s slowing GDP growth and rising debt levels. These tend to direct investors towards a short-term focus on China, rather than more important and favourable long-term attributes of the Chinese economy and equity market.

It is expected that China’s current GDP of US$11 trillion will surpass that of the USA, which is currently US$19 trillion, sometime between 2025 and 2030, putting China on the path to be categorised as a developed country by 2030.

From developing to developed, a 10-year path
While “developing countries”, the category China currently falls into, are countries in the process of industrialisation, the characteristic by which a country is typically deemed to be “developed” is that its services sector constitutes more of its economic activity than its industrial sector. The main cities in China are already well advanced and are in many respects developed economies.

South Korea is a great example of an emerging market that grew, rapidly over a 10-year period, into a developed country. The catalyst for change emerged out of the 1997 Asian financial crisis, when the IMF stepped in to restructure and modernise the South Korean economy. Impressively South Korea’s GDP per capita increased from US$12,000 in 1997 to US$20,000 within 10 years, and is currently ranked 42nd in the world at US$33,200, ahead of New Zealand’s 46th ranking at US$30,400 and China’s 121st position at US$10,000, which incidentally is heading to over US$20,000 by 2025.

Technology advancements to catapult China’s industrialisation
China’s embrace of new technology is the biggest factor catapulting its industrialisation and transformation into a modern service-based economy. Technology and industrialisation is combining in a way that should make China the envy of the developed world, and this underpins confidence in promoting investment in the leading Chinese companies.

Technology giants such as Alibaba, Tencent, Baidu and Ping An are Chinese companies that are raising the level of technology advancement in China. Impressively this technology also extends to the manufacturing, industrial and infrastructure investments being rolled out in China.

Three key technology advancements driving confidence in China

  • Smart manufacturing: Incorporating robotics with the goal of advancing China into even more of a manufacturing superpower than it already is by 2049.
  • Artificial intelligence, which is being rapidly developed by a broad number of Chinese ecommerce leaders such as Alibaba, Tencent, Baidu, and Ping An.
  • Construction of a 5G mobile network at a cost of RMB2.8tn between 2020 and 2030, led by China Mobile

To put China’s ongoing success in perspective, the chart below shows that by 2030 it’s projected that nine of the top fifteen cities contributing the most to global GDP will be in China, and it’s estimated that together they will contribute 2,889 billion GBP to the global economy.

Reference link: https://www.statista.com/chart/3886/the-cities-contributing-most-to-global-gdp/ 

Rob Mercer
Head of Private Wealth Research

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