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Opportunities beckon in China

Publication Date : 15-12-2013

 

Westerners tend to focus on China's social, economic and ecological problems, but when I took my parents back to their Fujian ancestral village in May, what greeted us was a miracle.

It was primarily an economic one, a transformation that had enabled millions of Chinese like my mainland relatives to climb out of poverty and into middle-class living in one generation.

My 40-year-old nephew Kar Hoo, his brothers and their families now live in a four-storey mansion complete with modern amenities such as air-conditioners and 42-inch LCD TV sets that would have been unimaginable even 15 years ago.

Kar Hoo said that when he was a child, his family was so poor that on Chinese New Year's Eve, his mother had to carry more than 50kg of mandarin oranges up the hill to the temple overlooking the village just to earn a few yuan.

It brought a lump to my throat on hearing his account. Those were the tumultuous times of the Cultural Revolution, but my father had been unable to lend his mainland relatives a hand as he was struggling himself to earn a living and raise a family in Singapore.

In the 35 years since then, China has made giant strides, starting with Deng Xiaoping's establishment of special economic zones such as Shenzhen and Xiamen.

China's doors opened even wider in the 1990s under Jiang Zemin and Zhu Rongji, as it joined the World Trade Organisation.

That, in turn, enabled China to become the world's second-biggest economy in the past decade under the leadership of then President Hu Jintao and then Premier Wen Jiabao, turning itself into a manufacturing powerhouse for global companies such as Apple.

One observation worth making is that once China decides on a certain course of action, it tends to reach its destination. Plans for such big changes were presented after closed sessions a year or so after changes were made to the Chinese leadership.

Thus, financial writers like myself watched the recent so-called Third Plenum - a four-day policy gathering of the country's top brass - with keen interest as we believed that it would be the launch pad for detailing the new leadership's 10-year plan.

The initial media reports seemed to be underwhelming, with economists and other experts unable to come to an agreement on how to interpret the bland language of the document issued.

But the tune soon changed as it became apparent that the changes envisioned by Chinese President Xi Jinping and Premier Li Keqiang are potentially as transformational as those made by Deng 35 years ago.

However, some research houses such as Schroder Investment Management have warned that economic growth does not always translate to strong stock market returns in China.

That has certainly been the case in the past two years. Even though the mainland economy has hummed along with an impressive growth rate, the Shanghai stock market trades at 64 per cent below its 2007 peak.

But if history is any guide, the new blueprint for reform may energise Chinese stocks and provide investors with an investment opportunity.

A good example would be the 300 per cent jump made by the Shanghai market four years after  Jiang and Zhu handed over the reins to Hu and Wen in 2003.

What caught my eye were take-away phrases from the plenum like "any prices that can be affected by the market must be left to the market".

While it might not sound as catchy as Deng's "it doesn't matter if a cat is black or white so long as it catches mice", it suggested that Singapore-listed firms such as plantations giant Wilmar International may be big beneficiaries if the Chinese leadership is serious about relaxing price controls.

There is another way to ride on any big eventual gains made by the Chinese stock market. This is to invest in the exchange-traded funds (ETFs) that hold baskets of stocks in giant Chinese firms traded in Shanghai and Hong Kong.

ETFs worth considering are the Tracker Fund, which tracks the Hang Seng; the H-share Index ETF that follows the Hang Seng China Enterprises Index; and the CSOP FTSE China A50, which buys into Shanghai-listed stocks. All three are listed in Hong Kong.

Two years ago, I took a bus along a new super-highway that cut the travel time between Hangzhou and Wuyuan - billed as China's most scenic town - from five hours to two.

As I wandered around Wuyuan to enjoy the spectacular fields of rapeseed flowers then in full bloom, the area was a beehive of activity as the construction of a new railway line got under way.

My cab driver said that by 2015, even Wuyuan would be connected to the nation's bullet train network. A passenger can leave Beijing in the morning and reach Wuyuan, more than 1,500km away, by nightfall.

Such is the rapid pace of progress which China is experiencing. As its new leadership gets down to overcoming the problems caused by rapid industrialisation, even more attractive investment opportunities will be up for grabs.

 

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