China is a country that has divided views. For some, it is the country where growth and prosperity are rich with a growing middle class and an income level that has been brought 300 million out of poverty in the last 20 years.
It also has questionable ethics and government policies that are playing sugar daddy diplomacy with countries and companies such as Luckin Coffee in 2020 and this has propped up results. It has stated to be one of the 1000s of companies that this has happened to in China. Netflix has a popular documentary on this. Furthermore, even China’s GDP figures are misleading and many economists do not take them at face value.
This is why many don’t see investing in China as an option.
2020 and China
2020, has been a good and profitable year for China, unlike most countries in 2020. Its GDP is predicted to grow in 2021 of 6.2% (source focus economics) and has changed its manufacturing to masks and ventilators to increase exports within 2020 to redeem some of the lost growth from exports. With the strict lockdown imposed early on the country that has 1.4 billion has had under 90,000 confirmed COVID cases. This being significantly less than the U.S with 1.9 million cases which is a ¼ of the population.
Ultimately, this has allowed China to regain economic normality in all but a few sectors (tourism, aviation, and leisure). While, other countries such as the U.S, UK, and others in Europe have had to produce large stimulus packages to boost the flagging economies and high unemployment. China has not had to impose such radical measures.
The UK has entered it’s third lockdown which is having an impact on the economy. Not all bad, it has accelerated the e-commerce sector and people are spending online and it has changed habits and forced people to be online.
China is also at the forefront of a technology revolution, many think of China as the manufacturing factory of the world. Look at Shenzhen, a city that was a fishing village only 40 years ago, it now exceeds the GDP of Hong Kong a leading global financial center.
It is home to companies such as Ping An, Huawei, Tencent. China for some time has been trying to divert its outlook from manufacturing to a technological one. Having lived in China I can say in many ways that it is in front of the west in terms of digital payments. China has been clever to invite the west in the early 2000s and copy the intellectual property and build all their own brands.
Would I invest in China’s stock and shares?
Looking to invest in Chinese stock is not without its risks, the balance sheets can be misleading. However, saying that a lot of companies that do report on the NASDAQ and even the HENG SENG do have strict market compliance to adhere by. Although this doesn’t make them legitimate, an example would be Lukin Coffee. Most of the large-cap companies are dual-listed meaning that they are listed in China/Hong Kong or China/U.S.
Besides, the fact that these large companies are dominants’ in their field and many have the backing of the Chinese government to help aid the technological advantage, for example, Huawei gets large discounts to produce the 5G network that it can use in other countries.
Also, taking a deeper look at the Chinese companies they are also looking to expand. If the 1.4 billion Chinese weren’t enough to go at, lots of companies are looking to branch out into South East Asia (SEA). Companies such as Tencent and Alibaba are setting up regional headquarters in Singapore and buying up companies in SEA.
For companies such as Alibaba buying Lazada, now have a market in Thailand and Vietnam. These are growing markets the GDP in countries like Vietnam Cambodia of 7%+ GDP. Also, Chinese companies are setting up strongholds in Indonesia and the Philippines, with a combined population of near 360 million and a growing income. This puts Chinese companies in a good position to take advantage of this change. One industry to show how the shift can happen is the phone market.
OPPO has seen success in SEA for a while, other phone companies such as Xiaomi have seen success in Europe. This is just one industry that is seeing a shift away from American products. The same can be said for social media (Tiktok) online retail, and payment methods, electronics, electric cars a just a few industries that China is looking to capitalize on.
With this in mind and over-weighted U.S tech stocks, I am presently keeping a close eye on China and Chinese large-cap tech stocks. I do believe there is growth in these Chinese companies because they are targeting countries with a growing GDP, however, the only thing you need to be aware of is their reporting and compliance procedures.
If you want to read an article about the over-weighted US Tech Stocks, this will explain more and my reasoning behind it!
