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By Caroline Grimont
(Sponsor Content)
Investors are missing out on strong growth opportunities by being underinvested in China: the world’s most populous country and second largest economy.
Since China slowed down from two decades of near double-digit growth, investors have become skeptical about investing in the country.
They worry about the country’s macro challenges; among them, a high leverage ratio resulting from a rapid buildup in debt over the past 10 years, excess capacity in industrial segments, an over-reliance on investment as a growth driver, and more recently, the risks of protectionism.[i]
In our view, these challenges are overstated. China has the capacity to overcome them and has taken a measured approach to sustain its growth, albeit at a slower pace. The Chinese economy has grown almost ten-fold from US$ 1.2 trillion in 2000 to US$ 11.2 trillion in 2016, second in size only to the US. Given the size of China’s economy now, a slower more sustainable rate of growth makes sense.
Our view is shared by Morgan Stanley, which states: “We expect China to avoid a financial shock and achieve high income status by 2027. Our view is that moving to higher value-added activities will propel the economy forward and drive the continued medium term outperformance of MSCI China versus MSCI EM, providing significant investment opportunities.”[ii]
China accounts for almost 50% of global economic growth
China remains one of the fastest growing economies in the world, with a forecasted growth rate of 6.5% in 2017 and 6% in 2018. On a global scale, China represents 15% of the world’s economy and accounts for close to 50% of global economic growth.
