Fine China for Investors
The People's Republic is exciting as ever with herculean growth plans, a booming tech sector and lifestyle changes aplenty. Credit Suisse is in the midst of it, most recently at our 8th annual China Investment Conference in Shenzhen.
It was an important meeting right after China's 19th National Party Congress, in which President and Party Chairman Xi Jinping declared "this is a historic juncture in China's development" and outlined his vision for the country – "Socialism with Chinese Characteristics for a New Era."
A short week later in Shenzhen, Credit Suisse convened a gathering of close to 1,000 entrepreneurs, analysts, bankers and investors (see BOX) to carry on the conversation. Three themes stood out: China's world leadership; the ongoing investment opportunities in tech; and the luxury life.
China's Place on the Planet
Addressing the audience at the opening of the conference, Credit Suisse's Head of Equities for Asia Pacific, Neil Hosie, said that China is indeed at the start of a new era, with China transforming from technology adaptor to innovator. "Ambitious targets have been set for the next 33 years – namely, China is seeking to become a top-ranked innovative nation with pioneering global influence by 2050. China has made great strides in the field of technology over the past two decades and this trend will only further accelerate. The Chinese market demonstrates unprecedented potential that no investor can afford to ignore."
Particularly exciting is the 'One Belt, One Road' initiative that aims to link China by sea, road and rail ever more tightly to central Asia, Africa and Europe. Investment in 'OBOR' is expected to sum to a whopping USD 5 trillion every year, reported Jun Ma, Director of Tsinghua University's Center for Finance and Development. That's equal to about one-third of the USA's annual economic output! Also making waves is 'Made in China 2025', a government plan to upgrade the country's entire industrial base with the latest in connectivity, intelligence and technology.
At USD 236 billion in 2016, China's R&D spending ranked second globally, although its level of investment is still about 25 percent below that of the US. However, with China's push for innovation to transform the country into a high-tech manufacturing powerhouse, Credit Suisse estimates that China's R&D spending will increase by 73 percent from 2016-2020, surpassing the US on a Purchasing Power Parity adjusted basis.
Tech Investments Sparkle
Because Shenzhen is China's version of Silicon Valley, naturally the tech industry was on display. One of the locals, hardware-incubator and venture capitalist HAX, warned investors that they are in for a high ride. "China is inventing, investing and enabling across all sort of technologies," enthused General Partner Benjamin Joffe. "So get on the spaceship before we blast off."
One company ready to blast off is 2015-startup COWAROBOT. Co-founder Liyuan Liu delighted the audience with a suitcase that automatically follows its owner. (There are also similar shopping trolleys, dining carts, folk lifts and couriers.) Liu foresees a future trillion-dollar market in autonomous mobility. Another rising star is Sensetime, whose co-founder and CEO Li Xu explained how the company is applying artificial intelligence to finance, security and commerce. Even a car manufacturer joined in the tech-fest. Daniel Kirchert, president and co-founder of BYTON, shared his vision of how innovation will redefine future mobility. BYTON is building the next-generation smart vehicle, to be unveiled next year, that will take sound, facial and gesture inputs to produce a new driving experience as well as artificial intelligence that continues to analyse inputs inside and outside of the car to predict problems, anticipate risks and ensure safety.
Others blowing the tech trumpet were cellular-provider China Unicom, smartphone and wearables maker Goertek, electronics provider Han's Laser, medicine maker Sinopharm, smartphone supplier ZTE and several more.
How to Spend It
China has gone beyond the days of all work and no play. Fashion retailer Paris Xu told the conference how children of the 1980s are willing to pay for quality merchandise, while millennials prefer to buy 'experiences' rather than things – which opens them to the idea of a sharing economy for things such as bikes and even wardrobes. China's luxuries industry has in the past two decades gone through three phases, explained Jerry Zhang, Former General Manager of Bottega Veneta. Before 2008, super-rich Chinese used luxuries to show social status. In 2008-2015 luxuries surged among the middle class, but then collapsed with an economic slowdown and anti-corruption campaigns. Since 2015, luxuries have entered a gradual recovery.
Two quirky lifestyle topics rounded out the agenda. One was Bon Day Education's Brian Ong on how to get admission to the USA's Ivy League colleges. Sport, public service, music – and of course good grades – top his list. But he advised against sending Chinese children too early to international schools: ethnic Chinese need to experience ethnicity, he opined. The other was e-sports, covered by Liangjun Xiao, Senior Co-founder and CFO of Seeinfront Capital and Yang Wang, President of Seeinfront's gaming business. They confirmed that e-sports are going the way of conventional sports. In another decade, they will be just as popular and lucrative.