(Pictured: Susan Dietz-Henderson)
With the China question – a big multi-facetted question facing all Australian investors – you have to look at the long term. Perhaps more than any other question facing investors. That’s what US-based global manager Capital Group is doing with its research effort.
Susan Dietz-Henderson, the former Australian diplomat who is the China affairs director for Capital, based in Beijing, studies the political shifts and with the 10-person China office feeds her insights into the Capital research system. Capital has 22 people around the world, including political experts, quantitative analysts and economists, who make up its strategy research effort.
Dietz-Henderson said last week on a visit back to Australia that the three main aims of the current regime, as they effected the long-term business relationships China has with the rest of the world, were battling corruption, battling pollution and providing food safety. She believes the Chinese Government, under premier Li Keqiang, means business.
Dietz-Henderson was recruited to Capital in 2008 by Michael Thawley, a former Australian ambassador to the US under the Howard Government, who is now a senior vice president in the Capital strategy research group and director of some of Capital’s US mutual funds. She says that he was looking for someone who understands China rather than an investment professional.
And Dietz-Henderson should understand China more than most westerners. She studied Chinese as a child, living in Shanghai, and later held several diplomatic posts around the world, culminating in the position of Australian Consul-General in Shanghai. She has a bachelor’s degree in arts and Asian studies, a diploma in applied linguistics and translation, and a diploma in applied economics.
Capital’s office in Beijing, like those of most foreign managers, is constrained in that it cannot generate revenue itself and is confined to research. Capital holds two QFII licenses for foreign investment in China.
Dietz-Henderson says that the recently announced Shanghai-Hong Kong Stock Connect program, which from October will allow both north and south-bound investment in China A shares via Hong Kong, is part of a broader agenda to deepen and eventually merge the onshore and offshore markets for the Chinese currency. The new program – known as the Through Train (Mk II, because of a previous failed attempt) – aims to reinvigorate China A shares and develop a multi-tiered capital market by boosting institutional investment.
Dietz-Henderson believes Li means to clear the house of corruption and restore some legitimacy to the Communist Party of China. “He’s establishing the new norm for what is acceptable and in his second five-year term will push through the reform agenda,” she says.
On pollution, China has both domestic and international commitments. It has pledged itself to reduce energy emissions and reduce coal usage, to be replaced by gas over time.
“When people look at coal and iron ore exports, demand won’t be as high over time, but there will still be demand,” Dietz-Henderson says. “It won’t be about skyscrapers in tier-one cities any more. It will be about mid-rise buildings for urbanisation.”
The food security issue is related to corruption, as the central authorities are trying to enforce the laws they have created to improve health and safety.