Panorama: China edition

The China complex

From singular to plural: A richer way of looking at China

An introduction from Barry Gill,
Head of Investments

So many myths and misunderstandings surround China. It is as complex as it is diverse, and it never fails to confound the West.

But China’s geopolitical and economic importance is without question. Investors, even if only indirectly, cannot escape exposure to the world’s second largest economy. It demands our attention. As Henry Kissinger once put it, “I do not always agree with the Chinese perspective… But it is necessary to understand it, since China will play such a big role in the world that is emerging in the twenty-first century.”

To some degree at least, we must put ideologies and stereotypes aside and find ways to remove our biases; only then will the real China emerge; the one that lies behind the headlines; the one that leads the way in renewable technology; the one that values security over freedom; the one that is socially and environmentally conscious in ways that we in the West do not yet quite understand.

This edition of Panorama is dedicated to providing a more balanced picture of China. We talk to Dr. Keyu Jin in The new China playbook, who challenges some of the misconceptions and biases and believes a radically different younger generation will reshape the country’s economy and future. The multi-decade period of high growth has come to an end for China, but the opportunities for investors have not. Evan Brown and Sylvia Liang provide a good framework to explain the country’s interconnected economic challenges (see Can Chinese equities withstand a slowing economy?). But at the same time, they point to the underappreciated secular opportunities, especially in the advanced technology areas that have geostrategic importance.

China’s push to achieve technology dominance is further discussed in An entrepreneurial state, where Michael Nell and Ellis Eckland consider how the state-centric model spurs innovation and compare the Chinese approach to that of the US. Bucking the trend(s) examines the relationship between GDP growth and stock returns, as well as where China A-share opportunities are in index investing with Boriana Iordanova and on the active equity side with Ian McIntosh and Bin Shi.

Because tensions between China and the US remain high, forces to decouple have been gaining pace. One interesting development to me is the digital yuan (see Dollar diffusion). The world’s leading reserve currency status of the US dollar is not yet being challenged, but the Chinese alternative is a central-bank digital currency (CBDC) pioneer that could someday upend the existing global finance system.

By and large, many see the US-China decoupling having a detrimental impact on the world. Nobel laureate Michael Spence believes the two countries can and must work together to advance on various critical global issues Where China and the US can underwrite world progress together. Lucy Thomas argues for the same in China and net zero: it will be impossible to stop climate change without China.

It is always dangerous to look at a country and a culture through a singular lens, let alone a country like China that has a rich and long history. I hope the different points of view presented here offer a plurality that is missing in the current public discourse, particularly when it comes to investing in China. The “Middle Kingdom” is connected to the world, and its impact on the global economy and markets should not be downplayed. It is important for investors to get to know the real China.

Please enjoy reading this edition and we welcome any feedback.

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