Investing in China – playing the long game

“Just as distance tests a horse’s strength, time will show a person’s sincerity.”
 – Xi Jinping quoting a Chinese proverb in a speech in Mexico in June 2013

Australia’s long-term prosperity is inextricably linked to China successfully achieving its goal of becoming a prosperous (high income) country by 2049 when the Party celebrates 100 years of its rule.  In this series of articles, we identify some of the businesses and sectors that we expect will prosper from the changing dynamic in China.

Part 1: Investing in China - playing the long game

China is Australia’s most important trading partner, and this will continue over the coming decade. Whilst we expect that the Australian resources sector will remain a key beneficiary from the continued growth of the Chinese economy, the opportunities across sectors are becoming broader.

Part 2: Future facing commodities and China

In Part 2, we draw two lessons that will endure as we move into the next phase of China’s evolution from an investment orientated economy to one that has a greater emphasis on consumption:

  • Be Long what China is short. Be Short what China is long.
  • The market size of the commodity matters.

Part 3: How Australian businesses can participate in the changing Chinese economy

China’s focus has now pivoted from being a manufacturing powerhouse to taking a more insular approach focusing on the Chinese consumer.  This presents a huge opportunity given the size of the Chinese middle class which equates to the entire US population. Although the absolute level of household wealth is low by developed markets standards, it is an enormous market given the size of the population.  The size of the middle class (people earning US$10,000-US$40,000 per annum) in China is set to double from ~300m people to over 600m in the next decade. At this level, China will make up close to a third of the global middle-class population.

In Part 3, we take a look at how Australian business can access the Chinese consumer.