China will turn into an economic powerhouse and provide returns for investors, similar to the scenar...
China will turn into an economic powerhouse and provide returns for investors, similar to the scenario seen in the US where multinationals already own 5% of the country's economy.
That is the verdict delivered by First State Investments and Baille Gifford which is now watching the Chinese market to see where future investment potential lies.
Fund managers warn it will still take up to a decade before corporate governance rules match the rhetoric, following the country's historic acceptance into the WTO in November last year.
Meanwhile, the country's chief advantage against other economies - its cheap pool of labour - will cause deflationary pressures around the world and force countries such as Japan to allow their currencies to depreciate or see more manufacturing business go offshore to China.
To really attract additional investments, experts say the country must strengthen its regulatory regime and develop the level of sophistication of its capital markets.
"It is going to have to turn what is currently a casino into an orderly, efficient market, in which companies are held to account by their shareholders, just as they are elsewhere in the world," says Mark Robertson, China specialist and manager of Asia-Pacific Equities for Baillie Gifford.
He was joined in the appraisal of Far Eastern investment opportunities by Suzie Rippingall, manager of the Scottish Oriental Smaller Companies trust at a roundtable organised by the AITC ahead of the start of the Chinese New Year.
Returns from investing in the Far East have been poor, particularly since the 1997 crisis, but staying away from China completely would be a big mistake both specialists say.
Mark Robertson predicts that the Chinese economy will surpass Japan within 15 years, and the US within 50 years at current historic growth rates.
Real GDP growth is estimated not to have fallen below 7% since 1995, according to Baillie Gifford figures.
Suzie Rippingall said she faced not only the issue of persuading investors to place money in markets that collectively have significantly underperformed the FTSE in the past 5 years, but additionally the issue that smaller companies of the kind in her fund have underperformed even more so.
The "casino" atmosphere on local stock exchanges is, meanwhile, stopping Scottish Oriental from investing directly into the country, and is forcing plays to be made through the Hong Kong stock exchange, where the regulatory regime is significantly more sophisticated.
Opportunity is knocking, however, as across the region belts are being undone following several years of heavy savings following the 1997 crisis.
This has thrown up a considerable list of consumer-related plays that could provide returns this year, including China - for example, new car sales rose 100% in Taiwan last year.
Mark Robertson says he feels China is slowly entering a period of sustained economic growth driven by significant improvements in productivity.
With 10 times the population of Japan and 4 times that of the US, it would only take a marginal increase in productivity among the general populous, including the half a billion still living off the land, to boost the size of the economy.
Productivity growth is running at 10% annually, Roberston adds, which means China is taking an increasing share of the global economy because Chinese products are becoming increasingly competitive.
Entering the WTO is a signal to ordinary Chinese that the government is committed not to turning back the clock, and that it will continue to dismantle the command economy there.
UK investors approaching China through investment trusts should, however, think in terms of locking up their investment for 10-15 years and expect volatility along the way.
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