A ‘different dimension’ for China equities
The domestic consumption story in China needs to play out in order for investors to see sustainable equity returns going forward, according to AMP Capital head of Greater China equities Patrick Ho.
Ho said that despite China's gross domestic product increasing by around 12.86 per cent per annum over the last 30 years, this growth had not come without a price.
"We are back on track, but we are not back on track to the ‘golden' time of what we call 2004, '05, '06 and '07," he said.
According to the 2010 ‘China Household Finance Survey', the national median household income was around $17,500 per annum compared to $559,000 for the top 1 per cent.
"We have 1.3 billion people and, frankly speaking, maybe 70 or 80 per cent of people are living on the median level," Ho said.
"In order to manage (China's) economy going forward, the new leadership needs to pay attention to this."
Ho said that in order to continue the growth story in a sustainable way, China's new Government would need to address the country's ageing population, its reliance on exports and investment, and meet the demands of the empowered middle class.
Although demand for infrastructure investment has risen by around 15 per cent per annum for the last 12 years, Ho said equity investors needed to think about China "in a different dimension".
One of the main agendas for China's new leaders will be pushing for what Ho describes as the "new" way of urbanisation — which means doing more than simply migrating people from rural areas to the cities.
"They have a house, they may have children — and people are demanding a bit more (in terms of) quality of life," he said.
"In order to boost domestic consumption you need to create that."
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