China - A Land of Opportunity?

China’s 20^th Communist Party Congress drew a great deal of negative sentiment. These centred around Xi Jinping becoming Head of State for a third time, a new team of more hard-line policy makers, a desire to safeguard China’s sovereignty and the desire to see state owned capital and enterprises get stronger and bigger.

The assumption by many is that China will invade Taiwan. The consequences of this action would likely follow the route of Russia, with sanctions being put in place. If this assumption is correct then this would effectively be a global “nuclear” fallout. China would lose all access to semiconductors and the world would lose access to the China market. This wouldn’t just see a fall in markets in China, but globally.

Why we think this is unlikely to happen is simple.

One of the key concerns coming from the conference was internal threats. Common prosperity is a key theme. Anything that disrupts that could cause significant unrest. When we read the paper coming out of the conference there are certain phrases which paint a very different picture to that which is reported:

“focused on promoting high-quality development”

“bring per capita disposable income to new heights”

“substantially grow the middle-income group as a share of the total population””

“development is our Party’s top priority”

“we will provide an enabling environment for private enterprises”

It is fascinating that the greatest fear erupted over the much hated zero covid policy. It forced the party to reverse its policy opening up the economy. This is positive for the global economy but there is a risk that with poor vaccination rates, low efficacy on vaccines and being in lockdown for so long it could cause the economy to slow as people become ill and that impacts productivity.

To conclude, China will overtake the US as the largest global economy and investors should have access to that opportunity because it is not like Russia. There will always be risks but the balance of probability of invasion is low, although the sabre rattling between China and the US will likely be noisy!