For international investors looking for the next big opportunity, China’s ‘new economy’ companies offer plenty.
In contrast to economies in Japan, Europe and to a lesser extent the US, new growth drivers in China have emerged in the technology, transportation and consumer services sectors. The marginal return on investment in these sectors is increasing and they do not have the same dependence on debt as companies in China’s old economy – such as manufacturing – sectors.
Big data is a big deal
If ‘big data’ generates competitive advantage for businesses in the first half of this century, China’s leading technology companies have a unique advantage. China’s vast population of 1.4 billion people are avid smartphone and social media users, giving these companies a huge stream of data to analyse – and use – to grow their business.
“China’s government understands the importance of creating new growth drivers”
This data will inevitably help China’s technology companies tailor-make new solutions for their customers, especially in the sharing economy. This is evident from the emergence of major app-based companies dedicated to cab-sharing, bike-sharing and online retailing over the past five years.
China’s government understands the importance of creating new growth drivers to take over from the old economy behemoths. It has approved foreign investment by China’s technology sector leaders, even as authorities clamped down against foreign investment by old-economy conglomerates, enabling them to access the latest know-how from abroad and help China rise up the technology ladder.
Belt and Road is the next big growth driver
China’s huge population provides the ‘new economy’ sector an attractive market to experiment new ideas and technology. However, the economy is also relatively protected, which some investors worry could result in the companies resting on their laurels.
Policymakers are very much aware of this.
China’s Belt and Road (B&R) initiative – which involves large-scale infrastructure development along China’s centuries-old trade routes across Asia, Africa, the Middle East and Europe – is part of the solution to ensure Chinese companies continue growing. B&R offers new opportunities and a road map to tap into millennial consumers across a much wider market. Chinese companies are taking advantage of this opportunity by gradually grabbing market share in the instant messaging, e-commerce and sharing economy across South and South-East Asia.
“There are a range of Chinese companies listed in the US, UK, Singapore and Hong Kong”
There is an opportunity for global investors here. During the 1990s growth spurt, international investors did not have easy access to rapidly growing companies in China’s finance, materials and energy sectors, as many were unlisted. Today, there are a broad range of Chinese companies in fast-growing technology, transportation and consumer services sectors which are listed in the US, UK, Singapore and Hong Kong. This has made them easily accessible to global investors, and those looking for some of the most exciting growth opportunities worldwide today should look no further than their nearest stock exchange.
This is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This commentary is provided for general information purposes only, it does not take into account the specific investment objectives or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Further details can be found in these terms & conditions.