China is the second largest economy in the world
ISSUE 1: FIVE REASONS TO INVEST IN CHINA SERIES
Considering the size, scale and growth of China’s economy, it's amazing to find that the participation of foreign investors in China is so low. Consider the following:
- China’s economy is the second largest in the world in nominal terms, with a GDP of nearly $17 trillion, approximately 18% of the world's total GDP (see chart below from Visual Capitalist). China is the largest manufacturer in the world with extensive production of steel, electronics and robotics and a significant commitment to innovation, particularly in retail, healthcare, technology and renewable energy.
- China has the world’s largest economy on a PPP (purchasing power parity) basis and accounts for 33% of global economic growth, four times more than the United States, Europe, Middle East, Africa, Latin America and Japan combined
- With a population of over 1.4 billion people, China’s middle class has increased from less than 8% in 2010 to over 50% of total households today.
- Chinese consumer discretionary spending has doubled since 2010, and the combined services plus consumption sectors contribute 75% to China’s GDP growth.
- China’s Government remains committed to economic growth through the expansion of domestic consumption, innovation and opening its economy to foreign investment. Unlike in the past, when China’s economy was vulnerable to external factors and shocks, China’s future economic growth will be predominantly driven by its domestic market
Yet, despite the above:
- Foreign investors generally have very little exposure to Mainland China in their portfolios - a total of only 4.1% of China’s domestic A share market
- Australia as a country invests only 2.1% of total foreign direct investment (FDI) in China, compared to 28.4% in USA and 20.2% in UK (source: DFAT)
- A review of Australia’s largest industry superannuation funds suggest that very few investors have any direct and/or targeted exposure to China’s A share market (other than via a broad exposure to Asian or Global Emerging Markets)
There is plenty of evidence to suggest that foreign participation in China’s A share market will increase substantially in the years ahead. How much exposure to China do you have in your investment portfolio?