China will be mainstream by 2020, investment managers believe

News - Banking

Written by Ray Clancy

Tuesday, 19 October 2010 09:28

By 2020 the world will be just as worried about Chinese interest rates as they are about American ones as the Dragon becomes firmly mainstream, it is claimed.

Following a trip to China with a select group of clients to research various regions and industries in the country, Terry James, business development executive at Jersey based investment managersAshburton, believes that currently the vast majority of the market is missing out on China.

‘One of the big themes for the next decade will be mortgages. China didn’t even have mortgages ten years ago,’ said.

He points out that in terms of Purchasing Parity Power (PPP), it is predicted that China will
overtake the US and Europe by 2030, while the number of autos (passenger carrying vehicles) will increase from the current 50 million to 200 million. Predictions are rife of 20% growth per annum to 2015 and 15% per annum through to 2020 in terms of infrastructure spend.

‘Labour costs have typically been increasing by 15 to 30% per annum and labour availability has been approaching full employment in coastal areas. The minimum wage has been going up, but typically employers have to pay at least double this to attract and keep key employees. There has also been a move towards remuneration being made up of a basic wage, typically 70% of total, and additional benefits at 30%, medical
insurance for example,’ he explained.

‘The latest generation of workers in industry, that is those born after 1980, have a different mind set to their predecessors too. They will stop working if the conditions are not right, no air conditioning for example, which would never have happened with previous generationsm’ he added.

He predicts there is likely to be an increasing focus on Research and Development design, branding which starts with reverse engineering and industrial applications. ‘Additionally
companies are no longer only China based as we see growing Chinese investments abroad, especially South East Asia for textiles and garments, and South America and Europe for machinery. This is likely to be supported by strong domestic demand particularly in machinery, autos, telecom, and power equipment,’ said James.

The export growth areas that are expected to increase most by 2020 include middle to high end machinery, medical equipment, autos, rolling stock, aircraft, branded middle to high end textiles, garments and footwear. Currently the principal export goods are portable computers, telecom equipment, low end machinery and OEM middle to high end textiles, garments and
footwear.

‘China is likely to remain a major exporter for the next two or three decades as it tries to up the quality and cost chain, for example for autos, high end electronics and telecoms, however some of these will be produced in the US and Europe to overcome politics,’ he added.