China is eagerly adopting green policies and technology but needs further innovation to prevent growth from slipping and better monitoring to avoid financial risks, HSBC’s fifth Annual China Conference in Shenzen was told in May. More than 400 investors and 150 companies attended the three-day event and heard industry exports and leading businessmen paint a picture of China’s people, companies, economy and its future.
In a wide-ranging series of presentations, these are a few of the points made by speakers and panellists:
- Housing dominates China’s personal asset allocation ¬– much more so than elsewhere. Its 90% home ownership is very high and, increasingly, demand is not from first-time buyers, but for trading up or investment. Property prices have soared, but market fluctuations could dramatically affect household economic activities.
- Chinese households have a high level of low-risk financial assets, such as cash, but also a high portion of high-risk assets, including shares – possibly because regulations have been eased. It means they invest very little in medium-risk assets.
- A substantial part of the increase in China’s urban population is actually ‘redefined migrants’ who already live in a city. Housing demand has thus been substantially overestimated, explaining the 40m surplus of new homes.
- After a strong start to 2018, China’s exports are losing momentum, partly reflecting slowing global industrial activity, particularly in Europe, and cooling consumer-electronics sales. US tariffs on $50bn of Chinese sales to America could shave 0.1 to 0.2 percentage points off China’s GDP growth. That’s broadly manageable, but at least two-thirds of high-tech shipments to the US are made by non-Chinese companies, endangering other economies in the region.
- China’s war on pollution is in its fifth year and the country is very serious about improving its environmental record. Listed companies are putting greater emphasis on better Environmental, Social & Governance, including disclosure to investors.
- Half the world’s 1,000 smart-city pilot projects are in China. The enhanced use of technology is essential for transport, infrastructure and energy, plus better data collection and efficient resource allocation.
- 5G phones will be deployed in specific areas initially, relieving congestion and improving performance in traffic hotspots. The investment should be similar to 4G budgets. Beijing insists China leads on this technology, so 5G should be commercially available in 2020, perhaps even next year.
- Last year’s 6.9% GDP growth is historically low and more innovation and consumer demand are required in services as well as manufacturing. Perhaps progress in technology and innovation is not reflected in the data because of time-lags or measurement issues, but it may also be because most innovation involves changes in business models, a trend yet to impact the overall economy.
- High debt and poor market discipline need monitoring. China’s array of financial regulators means some activities remain unregulated while others report to several watchdogs, each trying to contain the risks in their own areas. One regulator should cover the whole financial system.
Disclosure and disclaimer
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Herald van der Linde, CFA
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