by Nicholas Way
For the more-than 1,000 delegates to the 28th AVCJ Private Equity and Venture forum in Hong Kong, the fact that the benchmark Shanghai index closed last Thursday at a record 10-week high – up 20 per cent since its late August low – must have been seen as a vote of confidence in their optimistic view of China’s economic prospects.
Over the three-day conference, which ended on Thursday (November 5), most delegates lapped up the China “glass half-full” story, with speaker after speaker talking up the Middle Kingdom’s prospects of avoiding a hard landing and successfully transitioning from an export-led economy to a consumer-based economy. And it seems these speakers were addressing the converted, with an AVCJ poll of delegates delivering these results.
To the question which geographical market holds the greatest investment potential over the next 12 months, China topped the pops with 43 per cent, followed by Southeast Asia with 24 per cent, Indian and Japan sharing third spot with 15 per cent apiece, and South Korea lagging the field with 3 per cent.
Respondents were emphatic when asked when China would experience a hard landing in the next 18 months, with 83 per cent saying “no” and only 17 per cent answering in the affirmative. Even if China does experience a “hard landing”, only 25 per cent believed this would be bad for private equity.
The general consensus among delegates is that China will remain the key investment focus for private equity, although the India story is attracting more attention with its conference session getting a large crowd who were bullish on the country’s prospects. “It’s like China was in 2000,” one delegate quipped, with the pro-business government of Narendra Modi getting praise for modernising India’s infrastructure and encouraging foreign investment.
But China remains the Asian focus for this niche part of the capital markets. The numbers being thrown about were quite staggering, and certainly belie the notion that this is an economy about to hit the wall.
To choose some at random, in 2000 there were 200 fund managers operating in the Chinese market; today that number is about 8000. At a different level, an estimated 115 million Chinese will travel overseas this year; by 2020 that number is expected to reach 200 million. In the decade to 2020, healthcare spending is predicted to jump 600 per cent of RMB 2 trillion (about A$430 billion). And over the next two to three years, cinema visits in China will exceed the US.
If there’s a common theme to the above numbers it is this – the export manufacturing story for China is over. Other lower-cost countries are filling the gap China once held as the homes of cheap manufactures. In its place will be a consumer-driven economy with the focus very much on services such as health care, financial services and tourism.
John Zhao, chairman and CEO of Hony Capital (established in 2003, it is a leading Chinese buyout fund manager), told delegates in his keynote opening address that three words described China’s economy now – “innovation, opening-up and reform”.
“The economy is in transition to a consumer-based structure. There will be difficulties, no doubt, but for those who doubt China’s capacity to reform, to innovate, to open up to outside capital and ideas, I just ask them to remember what has been achieved to date.”
One final point: if the AVCJ conference delegates have got it right, and China is heading for a soft landing, it can only be good news for Australia, which can only mean another star is aligning for Malcolm Turnbull – just like it happened for Bob Hawke in 1983 when the drought broke. Luck’s a fortune in politics.
The AVCJ holds its 2016 Australian event, “Finding Market Opportunities in an Evolving Landscape”, from March 2-4, at the Westin Hotel, Sydney. http://www.avcjausnz.com/
Global markets drop, ASX200 down most in five months, Orica (ASX:ORI) and Afterpay (ASX:APT) smashed