Why China? Why now?
Hard landing? Not even close. China's GDP growth is stabilising. The country is riding on the dual trends of a growing tech and consumer culture. From almost nowhere, its private companies are becoming world-beaters in high-growth tech sectors, from smartphones to civilian drones, e-commerce to ride-sharing.
Inclusion of Chinese equities and bonds to global indices will bring new investment ideas, and integrate its massive capital markets with the global financial system. Even if you have shied away from China, its evolving story will impact your portfolio.
The time has come to put China on your watchlist, and understand the dynamics that are driving the New China.
In 30 years, China lifted 700 million people out of poverty - a feat unparalleled in history. Over the next 30 years, China aims to be the world's economic superpower, with Xi Jinping setting out his plan for the country to become a "global leader" by 2050.
Economically and technologically, China will become a more significant player over the next 20 to 30 years. Its GDP has already overtaken the US's GDP in PPP terms.
Its rate of growth now is roughly double that of the US. China is also the world's largest trading nation. And the largest trading partner for most countries (see below).
For investors outside China, an informed perspective on the country's economic manoeuvres has become imperative as it exerts a growing clout on global markets.
New Growth Model
The Chinese government understands the urgency to restructure its economy as the viability of its export and investment-led model came under increased pressure.
China's new growth model allocates a lesser place for exports as an economic driver. The share of exports in China's GDP rose from about 5 per cent in 1978 to a peak of 37 per cent in 2005 (below graph), but has fallen since.
While China is already experiencing a 'consumption revolution' driven by urbanisation and higher personal income, a firm hand has accelerated the structural transition to a domestic demand-led growth model.
For China, the transition towards new, advanced-economy growth drivers offers a route to sustainable economic development.
Service sectors including IT platforms, healthcare, education and insurance are currently underrepresented and will be the prime beneficiaries of a consumer-oriented economy.
Centrally Planned Economy
China's unique authoritarian-capitalist model has evolved to thrive in a global free market and surprised naysayers.
Its centralised system allows Beijing to muster the necessary resources and focus on the outcome that it wants.
This allows China to be very strategic in the way it has been investing, linking up with countries, building long-term economic relationships - which neither the US nor Europe can do.
An example is China's work in Africa: China-Africa trade (see below) - was $10bn in 2000; it grew to $220bn in 2014. The decrease since 2014 was largely due to the impact of weak commodity prices on the value of African exports to China.
In Latin America, a concerted state-sanctioned strategy of trade, loans and investments sees China asserting its influence on the region's economic development and geopolitical balance.
Belt and Road Initiative
The Belt and Road Initiative (BRI) programme is a multi-trillion dollar infrastructure-building spree that spans across Asia, the Middle East, Europe, and Africa.
Hailed as the 'project of the century' by Xi Jinping, the plan fits into China's bigger narrative of expanding its economic reach globally.
If it goes to plan, the audacious BRI will cover about 65% of the world's population, and transport a quarter of all the goods and services in the world.
The whole of Eurasia could essentially become China's economic zone. BRI would also alter global trade routes and anchor the world's centre of economic gravity in Asia, if not specifically China.
Based on HSBC's calculations, by 2025, China's middle-class population would have reached a staggering 1 billion.
In China, no seismic demographic growth happened by chance. Paramount to Beijing's economic strategy is to make the world's second-largest economy a "moderately prosperous society in all respects" by 2020.
The magnitude of this middle-class growth is already transforming the nation and its economy.
Chinese companies are emerging as world-beaters in many industries, by tapping on this immense domestic consumption class, with rising GDP per capita enabling more consumers to afford cars and other consumer discretionary.
Chinese consumption is expected to grow 9% a year through 2020, according to the Boston Consulting Group. Overall, the consumer economy is forecasted to grow by 55 percent, to US$6.5 trillion. That's an increase of US$2.3 trillion - which is like adding a new consumer market 1.3 times larger than the current consumer markets of Germany or the U.K. And that's assuming that China's GDP will grow by 5.5 percent a year, which is lower than the projected growth of 6.5 to 7 percent a year.
In June 2016, China outlined its vision to become the leading player in science and technology globally by 2030.
Today, business in China is being led by innovation-driven companies, like Huawei Technologies; the tech giant filed more patent applications than any other company in the world in 2017.
Meanwhile, other Chinese tech companies are winning contracts overseas, with electric buses from BYD, an auto manufacturer, plying high frequency routes in London, and a Chinese consortium beating Japan to build the high-speed rail linking Jakarta and Bandung.
Innovation is an inexhaustible engine for economic development. - Premier Li Keqiang
The country's largest Internet firms, Baidu, Alibaba and Tencent, are leading the world in e-commerce, mobile payments, social media, and online gaming. China captures more than 40% value of worldwide e-commerce transactions.
Planning further ahead, Beijing has laid out a detailed development plan in 2017 to become a world leader in Artificial Intelligence (AI) by 2030.
Bigger than its goal to achieve world dominance in AI is the top leadership's vision for a new Chinese economy powered by AI.
Money is pouring into countless startups as Chinese entrepreneurs and investors spy a huge opportunity to harness AI in different industries. It's little wonder about a third of the world's 262 "unicorns" (startups valued at more than a billion dollars) hail from China.
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Eng-Teck specialises in Asian equities and has extensive knowledge of Asian markets and economies, particularly North Asia and China, and the technology and real estate sectors.