What Trends and Developments are driving China’s Growth?

With China’s economy on the recovery, what trends and developments are we seeing drive China’s growth, and what does this mean for investors?

Reform in Chinese Markets

Market liberalisation and reform have unleashed a new potential for China. Increased openness to the global economy, as well as the developments in capital markets, are providing technology companies with new business models and increased access to finance. The development of the Shanghai Stock Exchange Science and Technology Innovation Board (STAR) market displays China’s drive to become a global leader in technology markets. The STAR market, advocated by President Xi Jinping, is China’s answer to the US Nasdaq.

The highly anticipated, and the world’s largest, Ant Group IPO is set to be dual-listed on the STAR market and the Hong Kong stock exchange. With this listing, this puts the STAR market at the top of all indexes for capital raised in 2020. The relaxed regulations of the STAR market, which allows loss-making firms to list themselves, has sped up the IPO process and is fuelling China’s growth of its technology industry. Equity offerings have paid an average of 6% in fees to investment banks compared to 5.3% on the Nasdaq, making the market even more attractive.

These market reforms, paired with strong economic recovery provides a strong scene for investments, especially as returns in Chinese markets are considerably higher than the rest of the world.

The development of 5G, AI and the Internet of Things (IoT)

Developments in 5G, AI and IoT, and the merging of all three, are set to be major tech drivers of new business models. The growth of all 3 will reduce costs for businesses and also increase the ease of doing business due to increased connectivity.

The seven billion IoT connections provide China with endless streams of data which allows for improved decision making as companies can use the insights they gain from data analytics to make informed decisions. This, tied with the possibility of complete 5G deployment across the country, adds to the attractiveness of China as a place for investment.

Chinese Consumer Readiness for New Tech and the Rise of Retail

Covid-19 has accelerated the pace at which traditional retailers are digitizing to meet the needs of tech-savvy consumers. In China, we have seen a 38% increase in the number of online shoppers aged over 45.

A recent KPMG survey suggested 53% of Chinese respondents indicated that they are very interested in new technology and will be the first ones to buy a new device when it is released, ahead of the 29% global average. This shows that it isn’t only the Chinese government pushing for a greater role in technology, but also consumers who are fuelling the fire!

The ‘hyped’ consumer engagement adds to the attractiveness of the market for investors as highly engaged customers buy more.

The New Wave of Consumer

The rise of the upper-middle-class in China adds to China’s future growth.

Source: China Briefing

The increase in Chinese household incomes is creating a structural shift in the Chinese economy. The movement from industrial production to the domestic consumption of goods and services is providing China with a new source of growth. This is helped by the huge flow of migrants from rural to urban areas which are helping this shift as they fill up service sector jobs.

This economic evolution will lead to increased profitability which adds to the attractiveness for foreign investors seeking to invest capital in successful businesses.

All of these factors make China an increasingly appealing economy for investment and potential new business ventures. The Chinese markets are ones to watch as we move into a post-Covid global economy.