Where to now for China?

Chinese economic growth is not going to fall due to the structure of its economy, according to a Hong Kong fund manager.

“The perception that China is a state-run economy is wrong, as it is now far more entrepreneurial,” Telligent Capital Management managing director George Lin said.

“This is creating jobs for many people, which is creating a supply chain for luxury goods and services.”

Telligent is one of the managers selected for Olympus Funds Management’s new Asia fund and will be given an initial allocation of 5 per cent of the capital raised.

Lin said his investment funds are looking for both manufacturing and service industries to invest in, and the manager makes up to 200 visits to Chinese companies a quarter checking on investments.

“Because of the creation of a middle class in China who want luxury goods, we will look at a luxury watch retailer in Shanghai, as there is a demand to own very expensive watches,” he said.

“Alternatively, we will look at a steel manufacturer in Xian because there is very good demand for steel in China.”

The changing face of Chinese manufacturing now has some state-owned companies being run by international operations.

“We do not discriminate between state-owned companies and entrepreneurial companies, as both are being run very efficiently and both have good growth prospects,” Lin said.

Another factor driving China’s economic growth is entrepreneurial companies have identified opportunities deriving from the manufacturing sector.

“We looked at a company called 9 Dragons, which is now the largest container board manufacturer in China,” he said.

“Every time a computer or electronic device is sent from a factory, it is in a container made by 9 Dragons, so it is a good company to invest in.”

There has been speculation that China’s growth will slow after the Olympics next year due to less building.

Lin believes this will not happen, as there will be more investment in factories and housing than that spent on building Olympic facilities.

“It is the urbanisation of China that is going to create real economic growth,” he said.

“People are coming off the farms into the cities, and that is creating demand for homes, cars, white goods and other household items.”

However, to encourage people to stay on the land, China has abolished taxes for farmers, which Lin points out is the first time in 2,000 years these people haven’t been taxed.

“We are very upbeat on the economy, as the middle class spend the same way as other middle classes around the world,” he said.

“Chinese growth is real, although there will be some volatility from time to time.

“However, consumption in the regional cities is outstripping Beijing and Shanghai, and the large domestic consumer market will ensure good economic growth in the future.”