Global Investors Upbeat On China
While analysts quibble over whether China’s economy will make a soft or hard landing, global investors remain upbeat.
The pace may be slower and the course bumpier, consumption is staggering, but there will be opportunities aplenty in China’s new, sustainable regime.
“We are very optimistic about China’s economy. We are long-term players, we do not look at short-term hiccups,” said Yousef Abdullah Al-Benyan of Saudi Arabia’s SABIC, one of the world’s largest chemical companies.
Along with surmountable difficulties, the slowdown also means opportunities. Companies must reshape themselves to bring new products to customers, Al-Benyan told this week’s Boao Forum for Asia (BFA) in south China.
It is this same logic that is driving Caterpillar (NYSE:CAT), the world’s largest construction and mining equipment maker. Although global sales and revenues slumped 15% in Y 2015, partly due to weak growth in China and low commodity prices, the US company remains committed to the Chinese market.
“China is an integral part of Caterpillar’s long-term global strategy and we are investing accordingly,” said Douglas Oberhelman, chairman and CEO of Caterpillar.
The Chinese government is calling for a higher level of technology and innovation, industrial upgrading and environmental protection, which will bring more opportunities to the industries Caterpillar serves, Oberhelman said.
SABIC and Caterpillar are definitely not alone in betting on China. Looking beyond the headline GDP number, it is easy to see why they are so confident.
Although China’s growth rate fell below the 7% level for the 1st time in 25 years, spending of the 1.3-B+ consumers still grew at a 2X digit pace.
Last year’s consumer spending topped RMB 30-T (US$4.6-T), a huge number by any standard and making the market an irresistible prospect for any overseas manufacturer.
Rising incomes, improving social security network and a new generation of freer-spending consumers will continue to underpin China’s consumer boom in the coming years.
According to forecasts made by Boston Consulting Group, China’s consumer economy may expand to US$6.5-T by Y 2020 even if annual real GDP growth cools to 5.5%. The incremental growth alone over the next five years would be comparable to “adding a consumer market 1.3X larger than that of today’s Germany or UK,” it said in a report early this year.
Other than consumer products, services like healthcare, education and entertainment are seen as high-growth spots.
At the BFA, Premier Li Keqanng assured global investors that “there are more hopes than difficulties,” and China has enough policy tools to keep the economy stable.
The country’s pro-growth policies have yet to spur a rebound in the economy, but macro economic data showed stabilization.
Although trade still plummeted and manufacturing remained weak, other indicators for the 1st 2 months of the year, including investment, property sales, fiscal revenue and power consumption, suggested improvement in the economy.
According to a Thomson Reuters/INSEAD survey released this week, sentiment at some of the biggest companies across Asia brightened in Q-1 of Y 2016, rising from a 4-year low registered 3 months prior, as executives bet on economic improvement in China.
“People are digesting the economic slowdown in China and are being more optimistic and looking for opportunities rather than being alarmist,” Reuters cited Singapore-based economics professor Antonio Fatas at global business school INSEAD as saying.
Stay tuned…
HeffX-LTN
Paul Ebeling
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