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18/02/20193 mins

Postcard from China: Insights from the inside

When you visit a country to meet company management teams, you often get some interesting insights into the way the local society operates. Those in turn can point you towards wider investment themes and opportunities. My recent visit to China was no exception.

During my round of company meetings in Shanghai, one of most striking things was the number of women in senior corporate roles. This was certainly higher than in most other countries I’ve visited. While Chairman Mao famously declared that “women hold up half the sky”, I suspect that the prominence of women in corporate life is one outcome of China’s infamous one child policy. That policy has recently been relaxed, but after four decades, one child per couple is now a well established cultural norm.

It would be interesting to see data on the Chinese pay gap. With a tradition of grandparental care for a family’s single child and very short maternity leaves (typically three months or so), motherhood must interrupt the average woman’s career much less than in the West. This isn’t to advocate a one child policy, of course – China’s low birth rate has left it with a drastically ageing population – but to note that the consequences of such severe government interventions can be unexpected.

The one child policy is bound to have had an effect on attitudes to education, as that single child embodies the hopes of not just two parents, but also four grandparents. The first generation of single children are now in their forties and there is a lot riding on their shoulders and those of their children – especially in a country with a very limited social security net and a tradition of the young looking after the old.

So, given that and China’s long history of career advancement through the imperial exam system, it’s no surprise that ordinary people value education in a way that would be surprising to many in the West. Last year, a big news story concerned a boy who walked miles through snowdrifts to get to his remote rural school. Updates to this were in the press during my time in Shanghai as the boy’s parents have now moved closer to the school and the school now has a dormitory to house its far flung pupils during the week. The story showcases the determination that ordinary Chinese people have to get on in life with education seen as the means to that end. Compare and contrast with the UK.

Not all school developments are positive news, however. There were also headlines in the Chinese press about a synthetic playground covering that was made from recycled industrial waste and was causing illness in children. It’s hardly the first safety scandal to hit China: in recent years, there have been problems with milk, infant formula, medicines and even recycled cooking oil. And, sadly, it won’t be the last.

Given concerns about safety, the lack of adequate social security and the twin problems of an ageing society and families having to rely on too few breadwinners, one of the great hopes for investors in China is insurance. The case in favour of more insurance is that greater numbers will buy coverage for worst case scenarios. There may be something in this. After all, Chinese people are well known for putting savings away for a rainy day. One of the factors in the global financial crisis of a decade ago was the imbalance between China’s savings habit and the West’s propensity for spending sprees. So there is certainly a market for insurance products and a cautious, forward looking attitude that may well be channelled towards them.

The property analysts I spoke to were certainly in bullish mood. One reason may be the dynamics created by China’s generations of single children with all the aspirations of their elders resting on their shoulders. Education is part of this, but another aspect is marriage and an eligible bachelor being expected to have a good job, a car and an apartment. That expectation should help to underpin the property market, even though prices in the big cities are already comparable to those in the developed world. The fact that older relatives can pool their savings to help out the younger generations probably helps.

Is it too early, though, to seek out stock ideas in China? Certainly, investors in the country’s stockmarkets have had a rotten time over the past few years. Pessimism abounds and the latest economic figures are hardly going to help. China’s GDP growth rate has fallen to its slowest level since the financial crisis – even if you trust the official figures, which are widely taken with a pinch of salt. For contrarians like us, universal gloom is usually a signal to seek out opportunities that could come to fruition some way down the road.

This article is the second in ‘Postcard from China’ series.
You can read the first part here.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.

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