GAM's Lai looks to cash in on Chinese consumer

China's population could fuel nearly half the country's GDP by 2020, according to Michael Lai, manager of GAM's Greater China Equity hedge fund.

Lai says Chinese consumers could be responsible for 45% of their nation's GDP in 10 years' time, demonstrating of China's growing self sufficiency. Presently, domestic consumers are responsible for 35% of GDP.

"I do not believe 60% or 65% is something in the foreseeable future, but the trend is in that direction," Lai says.

Chinese consumers already buy more cars and LCD televisions than Americans, Lai says. He says his fund's focus is "long China's consumer sector".

Lai adds China's centre of consumer wealth and production is shifting west, away from Shanghai.

"We are seeing a recallibration of growth away from the coastal region, which was the main growth driver from the 1970s, to those parts of the country that lacked investment for the past 30 years."

Single digit GDP growth in the first half of 2009 from coastal centres Guandong, Zhejiang and Shanghai was less than that from the central provinces of Hunan (10.5%), Hubei (11.3%), Sichuan (11.8%) and Chongqing (12.5%).

Lai says credit expansion in China - often criticised in the West - finances badly needed infrastructure inland. In Sichuan, for example, he says two thirds of the damage of the 2008 earthquake still remains unrepaired.

He is also long local banks that, with a small number of their Western peers, provide $75bn in trade finance to Chinese goods firms.

This activity was worth $90bn, he says, before UK, US and German banks were forced by the credit crunch to abandon it.

"The growth differential between Eastern and Western companies will widen," Lai says.

Lai's fund at GAM will be mirrored, partly through derivatives, in the Ucits-compliant Absolute China fund to be launched in the coming months by Insynergy Investment Management.