Andy Rothman, Investment Strategist and author of the blog, Sinology, published by Matthews Asia, addressed the main misconceptions which the Western investor usually holds about the Asian giant, during the investor forum which the company held recently in San Francisco.
The role of private enterprise in China: In 1984, the only private “businessmen” the country had were farmers who sold their produce at the roadside. Today, over 80% of jobs are private, 70% of investment is private, and 100% of new job creation is private. In fact, currently the engine of the economy is private and, notes Rothman, public policies will also end up being private.
Contrary to what most people believe, China is not an exporting country, currently, China's net exports are even negative. The Chinese economy is driven by private consumption and by investment, not by exports. In fact, China is already the world’s most powerful consumer, with a 9.1% growth in private consumption, fuelled by growth in the disposable income of the richest families, but also of the poorest.
Role of the housing “bubble”: in recent years, the price of housing has increased generally, but has done so at a lower rate than urban disposable income. Therefore, Rothman claims that it is questionable that a housing bubble has been created. However, with a decrease in the sale of new homes and a halt to their price growth, there is no doubt that the market has calmed down, but there is no collapse as there is no massive indebtedness and no ABS market to multiply the risk of collapse.
Shadow Banking: there are many risks within the Chinese financial sector, but they are not the same as those the Western World has suffered. Basically, the problem is that the party owns almost all the banks in China, so their transparency is questionable, yet shadow banking is not the problem, as Rothman points out.
Rothman concluded his presentation at the Matthews Asia Investment Forum with the next question. Why invest in China, now that growth slows down? The investment strategist recommended putting this growth in perspective. In 2003 the economy grew by 10%, while now it is growing at around 7.5%, yet the current GDP is three times higher than in 2003, so in absolute terms the economy grows more each year now than when it was growing at 10%.
For Rothman, the main problem in China in 10-20 years time is the lack of confidence in the Communist Party and in public institutions. When a situation of widespread discontent is reached due to an economic recession, which will occur in the distant future, there could be a situation of social revolution if the institutions have not reinvented themselves for that moment. However, within a reasonable time horizon of a long-term investor, the risk of this social revolution occurring within the next decade is very low.
Antes de unirse a Matthews Asia, en marzo de 2014, Andy Rothman ha trabajado más de 14 años como estratega macroeconómico en CLSA, Shanghai. Con más de 20 de años de experiencia viviendo y trabajando en China, tiempo en el que también se desempeñó como diplomático para Estados Unidos, aporta un extenso conocimiento y experiencia a la firma.
Rothman trabaja en estrecha colaboración con el equipo de Inversión de Matthews Asia, desarrollando estudios sobre China, que se utilizan para ayudar a componer los pensamientos sobre la forma en que China debe ser visto como país, a nivel regional y global.