$123trn is a lot of money – it could almost repay most of the UK government’s UK debt and my credit card bill combined.
It is also the astonishing number put on China’s likely economic size in 2040 according to a fantastically bullish article this month in Foreign Policy, a US-based ‘thought-leadership’ publication.
The author of this article is Robert Fogel, an alumni of the economics faculty at the University of Chicago and nobel prize-winning demographic expert who reckons China is going to be really, really big. In his words: “In 2040, the Chinese economy will reach $123tn, or nearly three times the economic output of the entire globe in 2000. China’s per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan.
“Although it will not have overtaken the US in per capita wealth, according to my forecasts, China’s share of global GDP – 40% – will dwarf that of the US (14%) and the European Union (5%) 30 years from now. This is what economic hegemony will look like.”
If you go to www.foreignpolicy.com you can read this article along with some fantastically articulate responses to it – page after page of China bears on the counter attack.
They remind us China is as demographically buggered as we are. The majority of the supposed investment in education goes to a small number of elite institutions, corruption is rampant and China is heading for the mother of all asset bubbles built on hype.
The bears rightly point out that within a decade or two China will have used up most of its own natural resources.
In between these two polar opposites – China as global leviathan and potential basket case – is I suspect a rather more interesting middle scenario. This scenario suggests China will make it to the lower rungs of the global middle order with GDP per capita in the $20,000 mark and that China will have to invest a colossal amount of money to get there, especially in its almost non-existent welfare state and poorly resourced education sector. But even this rather boring outcome hides what I think is a compelling narrative that could make the likes of Anthony Bolton at Fidelity (and the investors in his new China fund) a lot of money.
I call it the hidden China story and its best told by the New York-based managers of London listed investment fund Vision Opportunity China. This research-focused stockpicking fund specialises in finding proper free enterprise companies run by proper red-blooded capitalistic managers, not communist apparatchiks.
The fund’s current lead manager tells the story of a supermarket chain in a third level Chinese city in the interior of China, far away from the glamour hot-spots of southern China near either Hong Kong or Shanghai. This New York-listed small company is trying to take on the small mum and pop corner shops with the kind of supermarket experience that anyone familiar with Tesco would understand – in a boring city with no real competition to speak of.
Oh and that city has three million people in it! Here in the UK that boring city of three million would have dozens of supermarkets in it, not one.
Vast changes have already been seen within rural China and the even bigger changes are on their way over the next few decades. This growth narrative has very little to do with the export complex that has so far helped China vault ahead of its peers and everything to do with vast investment in the hard physical infrastructure and the soft infrastructure of schools and hospitals.
These are profound changes, for the good, but they are changes that will eat up China’s supposed glut of savings and force China to become more inward looking.
This is a difficult investment opportunity – one that is exclusively for locally-based research teams jam packed full of stockpickers who can tell the difference between a quasi-state enterprise and an amazing new service offering from the private enterprise that’ll make its founders a fortune.
For me this all about the small- to mid-cap China story – it is all high risk, high reward stuff that requires phenomenal focus and a sensible suspicion of highfaluting, mega-trend clap-trap. It is also the perfect environment for someone like Anthony Bolton at Fidelity – my only worry is that he will end up with too much money!
David Stevenson is a Financial Times columnist and consultant. Email him at davidcstevenson@gmail.com
