The economic prospects of China have been a subject of extensive debate among global media outlets and economists. Opinions range from optimism to pessimism. Two months ago, Martin Wolf, a senior columnist at the Financial Times, presented a thought-provoking article titled “We Shouldn’t Call ‘Peak China’ Just Yet.” In this piece, he offers a well-rounded perspective on the challenges and potential advantages facing China.
Wolf’s argument can be neatly segmented into three key areas. First, he provides insights into China’s current GDP per capita. Remarkably, China’s GDP per capita stood at a mere 2% of the United States’ 42 years ago. After approximately quadrupling, it reached 28% of the US in 2022, equivalent to about half of Poland’s GDP per capita. Should China attain Poland’s level, its total GDP would surpass that of both the US and the European Union combined. To provide context, South Korea’s GDP per capita in 1988 was similar to where China stands today. It took South Korea 19 years to double its GDP, reaching Poland’s current level, with the challenge of the Asian financial crisis in between. If China follows a similar trajectory, doubling its GDP per capita within 19 years, it may match Poland’s level in the 2040s.
Second, he acknowledges the concerns of investors regarding China’s economic prospects. Historically, China’s economic growth has been heavily reliant on fixed asset investments, notably in the real estate sector. Any measures to curtail the real estate industry are bound to affect the broader economy and amplify the vulnerabilities in the financial system. When compounded with factors like an aging population, tense international relations, and other variables, these issues do raise valid short-term concerns.
Third, Wolf emphasizes that investors should not be overly pessimistic about China’s economic outlook. He draws parallels with South Korea, which navigated a debt crisis in 1982 and the Asian financial crisis in 1997. During these periods, many held bearish views on South Korea’s economy. However, post-crisis, South Korea’s economy continued to thrive.
At the end, Wolf also pointed out that it is worth remembering the strengths of China, such as the nearly 1.4 million engineer graduates each year, a strong entrepreneurial culture, and leadership in certain fields, like electric vehicles. Wolf believes that China’s technology sector has long been ahead of Europe.
Beyond Wolf’s well-reasoned arguments, there are additional economic advantages that China can leverage. As specialized fund managers in China, we’d like to underscore a few more strengths.
First, China’s current infrastructure surpasses that of many emerging countries and remains competitive even when compared to developed nations. This positions China as an attractive destination for foreign investment. Once foreign investors regain their confidence, China’s appeal will shine once more.
Second, on a global scale, only the Chinese market boasts a level of uniformity and scale comparable to the US. China’s single legal system, tax structure, consistent trade rules, and shared language across the nation make it favorable for businesses. This uniformity enables companies in China to enjoy economies of scale, resulting in higher returns on investments compared to smaller countries. Companies that excel in the Chinese market also gain a competitive edge in dominating other markets. This phenomenon is why the US hosts more large multinational corporations than any other country in the world. We firmly believe that China has the capability to nurture more multinational corporations in the future.
This document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this document, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. All opinions or estimates contained in this document are entirely Zeal Asset Management Limited’s judgment as of the date of this document and are subject to change without notice.
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