Temat: China: Next Ten Years. Jack Perkowski's Perspective

China: Next Ten Years. Jack Perkowski's Perspective

With new leadership in place, international companies and investors want to know whether China will continue along the same path under President Xi Jinping and Premier Li Keqiang as it did under their predecessors, or whether Xi and Li will take the country in new directions. Whatever the answer, they also want to know what the best opportunities in China are likely to be over the next ten years.

It’s still early, but the leadership transition has been smooth, and China’s direction seems largely the same—with several notable exceptions. Reform of China’s financial system can be expected to play an increasingly important role in the new administration, and curbing corruption will be an important objective. Though largely symbolic and not an official policy, government leaders are being quietly encouraged, for example, to limit banquets to “four dishes and one soup!”

Although most industries will continue to enjoy sound fundamentals as the country progresses at a more sustainable growth rate of 8% or thereabouts, the following five promise to be particularly attractive.

1. Consumer Goods And Services: China is, by far, the biggest consumption story in the world today. Over the next ten years, China will account for 36% of the total global growth in consumer spending. In everything from cars to food to jewelry, China will become the largest market in the world---if it isn’t already. For consumer products and services companies the world over, China will be their single largest growth opportunity.

2. Technology: With China’s growing affluence, labor and other costs are on the rise, so all companies operating in the country are moving away from low value added products that rely on cheap labor to higher technology, higher value added products. Companies with new, advanced technologies in virtually every field will be welcome as a result.

This is especially true in problem areas like the environment. The high levels of pollution that have blanketed Beijing and all of Northern China in recent weeks has drawn attention to air quality, but water is no less a problem. Twenty percent of the world’s population lives in China, but the country only has 6% of the world’s supply of water. Moreover, 90% of China’s ground water is polluted. Technologies that improve air and water quality, “green” buildings and alternative energy are just a few of the many opportunities available.

3. Health Care: When people become wealthier, it’s only natural that they want to live longer. This is certainly true in China, and the country’s health care sector is one of the last big industries to open up to foreign investment and technology. Pharma and medical device companies, as well as companies that have developed world class management systems for hospitals, clinics and assisted living can be expected to do well over the next ten years.

4. Agriculture: In the world’s largest ever urbanization movement, 260 million Chinese, nearly one-half of the country’s rural population, will move to the cities in the coming years. That is why construction and property, despite reports of a “property bubble” in the Western media, remain good opportunities in China. In addition, however, with half as many people available to work on the farms, improving the productivity of the agricultural sector is a priority. Equipment companies, as well as those with agronomic technologies and know-how in crop and livestock management will find a receptive audience in China.

5. Capital Markets: China’s banks are “too big to lend.” That is why, in an effort to provide more loans to the country’s small and medium sized enterprises, the companies that provide the bulk of new jobs in any economy, China is now opening up its banking system and granting micro-finance licenses to qualified companies and individuals. The development of China’s capital markets over the next ten years will fuel a new round of growth, innovation and wealth accumulation in the country.

Despite thirty years of economic development, China is still at an early stage of development. Borrowing a line from Winston Churchill, this is not the beginning of the end of China’s economic development, but only the end of the beginning. Whatever your company’s products or technologies, or whatever services it provides, there are likely to be substantial opportunities in China.

Jack Perkowski

http://jfpholdings.com
http://managingthedragon.com