China is on the cusp of keeping a big promise — a vow to double its GDP and income in a decade and take the country to the forefront of the global economic power structure.
The ascension began in the late 1970s with a move to more open markets. It continued through aggressive central planning, utilizing the advantages of cheap labor, a devalued currency and a robust factory system to spread its products around the world.
China has climbed to No. 2 in the world, with a GDP of $13.1 trillion that, while still trailing the U.S., keeps getting closer. Forecasters expect that growth just north of 6% in 2020 will get to the stated goal of doubling the economy from 2011-20.
On the other hand, China also is a country that appears to be taking the worst of the trade war with the U.S. and faces myriad other challenges to keep up to torrid pace of growth.
The future awaits, then, however complicated.
“Going forward, China is going to continue to be very competitive,” said Michael Yoshikami, founder of Destination Wealth Management. “China is still going to be a global player. But it’s a matter of managing expectations relative to what you think is going to happen.”
Indeed, a nation with growth that would be the envy of virtually anywhere else in the world is seeing, in relative terms at least, a significant slowdown. Growth peaked at 14.2% in 2007 but has declined to below 7% annually each year since 2015, according to World Bank figures.
The upside
Wall Street, though, thinks the issues in 2020 could be a turning point.
Looking further out on the timeline, there are plenty of reasons to expect that China’s drive toward No. 1 will have strong tailwinds, which will be propelled by amplifying what pushed the country’s growth over the past decade.
There’s a multi-faceted bull case for China that starts with the emergence of multiple “supercities.”
As the transition takes place, some 23 of these supercities will have populations greater than New York and five alone will combine to house 120 million people, according to projections by Morgan Stanley.
By bringing workers from the countrysides into the massive population centers, the supercities are aimed at arresting the drag that an aging population is putting on the broader Chinese economy
“We believe the answer to these challenges is a new phase of urbanization with the potential to create productivity gains by facilitating the freer movement of enterprises and workers while generating synergies between diverse industries,” Morgan Stanley economists said in a report.
Room for investing
China also is investing heavily in 5G technology as part of the modernization and urbanization efforts. The purpose is to get houses connected so that they are heavily automated, while students can use virtual reality learning to help with everything from online tutoring to homework.
As an investable situation, Morgan Stanley advises clients to look to technological infrastructure, the Internet of Things and software as one theme; digitalization of old-economy industries as another, and the supercities trends as a third, looking at smart appliances and vocational education among other innovations.
Reference: CNBC
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