The Chinese economy
The Chinese economy had one of its worst performances in decades during 2022, as growth was dragged down the strict lock down policies adopted by the Chines government. The opening of the economy in January 2023 means the country spent over 1000 days isolated from the outside world.
With restrictions being lifted, China will focus on stabilising its $17-trillion economy in 2023, which will no doubt have a positive impact on the Global economy. China is home to some of the largest companies in the work by market capitalisation. One of Naspers and Prosus's biggest investments is Tencent, and a strong share recovery in the Chinese tech giant, will see both Naspers and Prosus shares increasing in value.
Offshore diversification
The JSE represents less than one percent of the Global GDP and investors should be looking to further diversify their portfolio through international exposure. The opening of the Chinese economy might present an ideal buying opportunity in 2023 for South African investors looking for offshore exposure.
Opportunities
China is well underway on the long road to rolling back COVID-19 restrictions and although there are likely more twists to come, a reopening under new leadership spells a shift away from the 1000 days of economic slowdown and asset underperformance.
The signal that years of lockdown was ending was given on 11 November, when President Xi Jinping and his new Politburo Standing Committee announced 20 guidelines to optimise pandemic measures, including prohibiting excessive lockdowns and relaxing quarantine and PCR testing requirements. As a result Chinese markets have started increasing towards the end of 2022 and into the beginning of 2023 with high levels of optimism and positive investor sentiment.
Given China's domestically focused policymaking and large scale of consumer power, it continues to offer diversification benefits to investors as well as investment returns to those investors investing for the long-term.
China is one of the fastest growing emerging markets in the world. It has the second largest bond and stock market in the world and Despite America's efforts, the Chinese economy is expected to surpass the United States in the coming years. China's enormous population means GDP growth has a sound foundation and is not expected to slow down anytime soon.
China's economy is best known for its manufacturing sector which became the world largest in 2010. While the communist government maintains many state-owned enterprises, its free market policies have encouraged foreign investment.
China is home to some of the largest companies in the world and has reported high single digit economic growth over the over the last twenty years, making it the fastest growing major economy in the world. China has demonstrated its ability to drive economic growth and will be further supported by increased infrastructure; policy reform; global competitiveness; a large and increasingly educated workforce; export friendly policies as well as increased consumer demand. Like any economy in the world there are risks to investing in China and some of these include:
Risks
Investing in China is however not without risks. The region has been criticized for selective disclosure as well as regulatory differences to the west. Chinese companies adhere to their own accounting policies which differ from GAAP and IFRS making it challenging for analysts to determine future profitability. China's growth into an economic superpower has opened it up to geopolitical criticism and include:
Social instability: There is an enormous wealth divide, with the richer residents earning as much as 25 times more than the poorer residents. This has the potential to create social instability or capital outflows. Under communist rule, this is something that has been tolerated for decades.
Demographics: China's economic success and world leading manufacturing sectors has been due to a young cheap workforce. This is changing as the population growth starts to slow and its young working population will not last forever.
Trade wars: Trade wars between the USA and China, still pose a risk. This risk has also been heightened on the back of the Global pandemic. Although a risk, the trade war has also allowed Chinese companies to focus on servicing their own population and grow intrinsically. The world is still looking for answers as to the origin and cause of the global pandemic.
Covid-19: Heard immunity has yet to set in, due to the lockdowns in place since the start of the Global Pandemic. This may result in increases of cases and a possible impact on the economy.
How to access the Chinese market?
