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CHINA 2013 MACRO OVERVIEW

MACRO OVERVIEW CHINA 2013

about 3% to 4% of GDP each year. “The positive side to this is that the strengthening of environmental laws can help convert this loss to the economy into a gain by promoting investment in clean energy and environmental protection businesses,” he says.

KEY FACTS
Macro imbalance
Investment (LHS) Savings (LHS) Current account (RHS)

NEW OPPORTUNITIES FOR INVESTORS
Far from restricting the range of investment alternatives available to investors in China, Zeng and other managers say that the transformation will open up an increasingly broad and diversified range of opportunities at a number of levels. The first is that the process will create a more conducive environment for investment in a range of innovative, consumer-facing companies, many of them SMEs. “The new government is committed to breaking up state-owned monopolies,” says Zhao Chen, managing director at BCA in Montreal. “Over the last year alone, there have been five initiatives to allow private investment in sectors that were previously monopolised.” The potential for dismantling these monolithic public sector companies is considerable, Chen adds. “The public sector’s share of GDP, which is a legacy of the previous government, is now as high as it was in the early 1980s when the Chinese economic reform programme began,” he says. Others agree that the restructuring of the Chinese economy is already presenting new opportunities for investors. “We think there are enough companies coming through in the new economy and the services sector to create plenty of opportunities for stock-pickers,” says Mike Curry, co-head of Asia at Hermes BPK in Singapore, which had $2.6 billion in AUM as of March 2013. At Greenwoods, Zeng says that these opportunities are already proliferating in sectors such as consumer goods, pharmaceuticals and healthcare, clean energy and TMT. of GDP per annum More broadly, say investors, opportunities will be created as reform accelerates a process of

(% GDP) 55 50 45 40 35 30

Pollution costs

3-4%

consolidation in China. “We’re not going to see a repeat of the one-way bull market that we saw in 2006 or 2007,” says Jenny Tian, managing director of the Beijing-based Springs Capital. “But as China slows down and excess capacity is taken out of the economy, winners and losers will emerge, creating plenty of stock-picking opportunities for investors.” The second way in which a managed slowdown will create opportunities
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12 Special Report September 2013

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Source: Fitch
September 2013 Special Report 13