Janice Hu: China could surpass the US to become the largest consumer market in the world
Janice Hu, China CEO at Credit Suisse, sheds light on how China is ‘Changing Gears’ with ambitious targets to increase the medium-income population by 75% in 2035 and achieve carbon neutrality by 2060.
China is ‘Changing Gears’ — what are your expectations for China over the next 12-months?
Janice Hu: China’s economic rebalancing and upgrading is expected to remain well on track, despite the near-term pressure in the coming few quarters due to the weakness in consumption and the cooling property market.
Investment in the “new infrastructure”, increased output and exports of high-tech products, the growth of renewable energy in the total energy consumption mix, and the rapid share expansion of electric vehicles in the passenger car market will remain the most important drivers of China’s economic transition.
We expect the slowing household investment in the property sector to generate more opportunities for domestic and foreign financial institutions providing wealth management services in China.
Although the impact of the new COVID outbreaks remains uncertain over the next 12 months, as China’s vaccination rate improves and more effective anti-virus drugs are put into use, we expect China to further open up to travel in the second half of 2022.
We expect common prosperity, carbon reduction and technology independence to remain the top priorities for China’s policymakers over the next 12 months and beyond.
What does China’s ‘common prosperity’ strategy mean for investors?
Janice Hu: Investors should be aware that China’s ‘common prosperity’ strategy remains pro-growth. The primary goal is to forge an “olive-shaped” society by increasing the medium-income population, which is around 400 million at present. If this strategy is successful, China will surpass the US as the largest consumer market in the world, and indeed it will be far larger than the US market.
The strategy will benefit both consumption and the wealth management industry in the long run. Credit Suisse’s China Quantitative Insight (CQi) team forecasts that policymakers may set “increasing the medium income population from 400 million to 700 million” as its top quantitative target for common prosperity by around 2035. Meanwhile, investors in the Chinese market may see large corporations in high-margin industries being required to perform more national service, and policies becoming more supportive of small and medium-sized enterprises which generate the most new jobs in China.
We also expect the government to pursue a faster expansion of the wealth management market to help ordinary people increase their property-based income.
China's national carbon trading market has been put into operation this year and is set to become the largest carbon market in the world.
Janice Hu, China CEO, Credit Suisse
What role do you see for banks in supporting China’s move towards carbon neutrality?
Janice Hu: The financial system also needs to transit towards a “greener” borrower base. It is worth noticing that industries where policymakers hope to see more capital invested, such as renewable energy, healthcare, education, software development and corporate R&D expenditure, are mostly carbon-light. Therefore, the carbon neutrality agenda could be used as an effective leverage to foster China's financial reform.
Secondly, to achieve net-zero carbon emissions by 2060, China may need to invest about RMB100-130 trillion in green projects over the next 30 years. To date, the majority of green funds have come from the government. The central government wants to see a significant increase in private sector involvement. Therefore, domestic and foreign banks, securities companies, insurance companies and all types of investment funds should play more critical roles in steering private capital to fund green projects. At the same time, China's national carbon trading market has been put into operation this year and is set to become the largest carbon market in the world. Financial institutions should grab the emerging new business opportunities and actively participate in market building and product development.
What are Credit Suisse’s ambitions for its China business over the next year?
Janice Hu: China is a strategically important market for Credit Suisse, both in the Asia Pacific region and globally. We firmly believe in the long-term prospects for China with its continued liberalization, and are committed to investing in this market. Our long-term goal is to be a meaningful participant in the development of China’s financial markets. We plan to continue to invest to broaden our footprint in China, extending our strengths as a leading wealth manager with strong investment banking capabilities
As a leading global bank in the region, Credit Suisse is well-positioned to support both domestic and international investors in accessing the country’s capital markets by tapping into our best-in-class advisory and execution capabilities. Credit Suisse has a strong track-record of helping China’s entrepreneurs and corporates to tap the capital markets as they pursue their own growth ambitions, and we look forward to continuing to play a leading role on such activity in the China onshore market as well.