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Four themes that shape the new China

Four themes that shape the new China

China’s A-share market offers exposure to four themes which are driving the emergence of a ‘new’ China:

1. Consumption upgrade

The composition of consumption is changing. China’s middle class is growing, with rising wages to spend. The middle class will drive spending on luxury items, embracing new tech and traveling abroad. Young adults are spending on entertainment and innovative products. Also, a growing group of aging, wealthy Chinese is spending more on services, such as financial services and health care.

Robeco Chinese Equities
Robeco Chinese Equities

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The rise of the middle class visualized in changing car model preferences

2. Industrial upgrade

China wants to upgrade its industry, to become a quality rather than quantity manufacturer. It focuses on ten strategic sectors, including railways, new energy vehicles and robotics. China already has the world’s largest robot market, accounting for 27% of global shipment. Faced with rising labor cost and an aging population, the government is actively promoting the robotics industry with measures such as tax reductions and special R&D funding. China also has the world’s largest electric vehicle (EV) market, selling 550K new energy cars in 2017. Chinese automakers are responsible for 53% of all new energy vehicle sales in 2017 globally.

China is leading the electric car (EV) revolution

3. Structural reform

Structural reforms include supply-side reforms, which aim to eliminate a significant amount of excess capacity, especially in raw material industries such as cement and steel, consolidate industries and improve efficiency. Furthermore, state-owned enterprises (SOEs) are being reformed, with the introduction of mixed ownership. Last but not least, the government has a strong focus on environmental reform as well.

Mixed ownership of SOEs

4. Technology and innovation

China has the world’s largest smartphone market and will benefit from innovation in areas such as virtual reality, autonomous driving and the Internet of Things. We expect over 60% of economic growth to be fueled by innovation and technology by 2020.

The cell phone cycle
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