Opportunities in China
As China releases its latest five-year plan and marks a rapid return to pre-pandemic growth levels, with forecast of 8.5 per cent GDP growth for 2021, HSBC Private Banking and Wealth Management’s Managing Director and Chief Investment Officer for Asia, Cheuk Wan Fan, shares her thoughts on the opportunities available.
The new five-year plan, the 14th of its kind, outlines the strategic roadmap for the next phase of China's economic transformation. Endorsed by the National People's Congress, it shows a substantial pivot towards domestic consumption, technological innovation and the green revolution.
These strands underpin a shift towards quality, sustainable growth, through the so-called ‘Dual Circulation' strategy. It means that China is balancing its previously largely export-led development strategy with greater focus on the domestic-driven market and consumption-led growth. In the face of external headwinds, political tensions and with a significant internal market opportunity, the reasoning behind the shift is clear.
Opportunities in the green economy
Part of that move sees the Chinese government committing to increasing spending in technological innovation, R&D and industrial upgrades, boosting its technological self-sufficiency. China has also pledged to achieve carbon neutrality by 2060. As the world's largest carbon-emitting country, this is a significant undertaking and policies around renewable energy and electric vehicles will be developed to facilitate this.
China is already the world's number one market for electric vehicles, and the range of policy initiatives to promote the development of renewable energy, particularly solar, wind and hydro power, will offer new investment opportunities throughout the supply chain.
China's size and influence in a global context and its increasing role as a key engine for growth, mean that its focus on stability matters and provides some positive news for global markets, - Cheuk Wan Fan, Managing Director, Chief Investment Officer for Asia, HSBC Private Banking.
Focus on stable and sustainable growth
The reintroduction of growth targets in conjunction with this focus on the domestic market offers a clear policy signal that sustaining stable economic growth will be a priority for the Chinese government in the future. As China is set to remain the single largest growth contributor to global GDP in the coming years and, we forecast, is set to overtake the US as the world's largest economy by 2030, this policy stance is hugely significant.
China's size and influence in a global context and its increasing role as a key engine for growth mean that its focus on stability matters and provides some positive news for global markets.
Attractive investment and trade potential
Considering future global trade flows, we anticipate that shifts to onshoring manufacturing capacity and protectionism around strategic industries that we've seen countries around the world adopt as a result of the pandemic will become the new normal. Despite that, Asia has already achieved critical mass, for example, in technology supply chains. North Asia continues to drive this shift to high-end, smart manufacturing, with low-end manufacturing capacity likely to migrate to the lower-cost Southeast Asian countries. It creates a dynamic region and underpins the attractive investment opportunities available.
We're also seeing an increase in intra-regional trade within Asia. The signing of the Regional Comprehensive Economic Partnership (RCEP), creates the world's largest free trade bloc. Its 15 members currently account for 30 per cent of global GDP, a figure we forecast will rise to 50 per cent by 2030. That represents real opportunity for countries like the UK, keen to establish and enhance economic and trade ties with the region.
Understanding opportunities in the region
For investors interested in this high-growth region and seeking an opportunity to participate in China's growth story or the structural growth story of Asia as a whole, there are a number of options. For overseas investors who may not feel totally comfortable with a single hold, support from investment counsellors with strong knowledge of the region and the specific countries within it, can help boost confidence in building their strategic asset allocation to Asia and China through a diversified solution, enabling them to explore the potential on offer.