News & Insights

Weekly update – "In every crisis, there is opportunity"

This week’s update is written by Shannon Lancaster, who is in our discretionary investment management team in Guernsey.

Over the weekend the news broke that China is targeting economic growth of about 5% in 20231 — one of its lowest targets in decades.

Chinese Premier Li Keqiang unveiled the target on Sunday at the opening of the National People’s Congress (NPC) that is gathering until 13th March in Beijing.

The moderate growth rate of 5% in 2023 comes during a challenging period as the region faces issues domestically and externally. Beijing is seeking to rejuvenate the world’s second biggest economy after scrapping its zero-Covid policy of lockdowns, mass testing and quarantine late last year. In 2022 China’s economy officially grew 3%, which was short of their 5.5% target1 - a result of tough pandemic restrictions, a property market slump, government crackdowns on technology businesses and the United States-China trade war.

Although China’s economy appears to be rebounding strongly from the pandemic — manufacturing activity in February, for example, exceeded expectations1, expanding at the fastest pace in more than a decade — Chinese officials have warned of risks ahead.

China GDP Annual Growth Rate

Source: Trading Economics

While acknowledging China’s vast potential and momentum for further growth, Li managed expectations. He pointed to the rise of “uncertainties in the external environment,” including high inflation, and “external attempts to suppress and contain China” — a thinly-veiled reference to the country’s heated geopolitical competition with the US.

China’s economy faces serious long-term challenges domestically, too, including an enormous housing bubble and a shrinking working population due to a low birth rate. Many economists believe that China’s high-growth era, which was characterised by decades of double-digit expansion each year, is now in the past. Some fund managers have stated they believe growth of the Chinese economy will likely be around 2% annually until 2050. This casts doubt on long-held assumptions that China will overtake the US as the world’s biggest economy in the coming decades.

During the opening of the NPC, during which the ruling Communist Party will choose its leaders for the next five years, Li indicated that Beijing would not lean heavily on coffers to stimulate growth, stressing the need to revive private consumption and stabilise spending on big ticket items. He also said the government would aim for a fiscal deficit of 3% relative to the gross domestic product in 2023, up slightly from 2.8% last year. Li also put heavy emphasis on job creation, setting out a goal of 12 million new urban jobs in 2023, up from a target of 11 million jobs in 2022.

Our fund managers still see attractive investment opportunities in China. Some expect market leadership will widen over the coming decade as investors look beyond the well-known Chinese mega cap names and further down the market cap spectrum.

We believe there are still plenty of opportunities to find innovative businesses in China that will potentially be successful regardless of short-term macro-economic developments. We believe accessing the region through bottom-up fundamental stock pickers is the winning formula.

We hope you have a good week.