What’s especially interesting about the paper highlighted today is when it was written, back in December 2014. Then, Lawrence J. Lau of the Institute of Global Economics and Finance at The Chinese University of Hong Kong, noted overcapacity in the Chinese economy and a savings rate not conducive to encouraging household consumption.
Of note, in the few short years since this paper was written and today, many of the issues flagged are now on the table for address.
Moreover, the observations in the paper about how China’s scale and surplus labor capacity issues can continue to fuel the growth momentum remain as true today as then.
Perhaps the author is a bit off in terms of what level of growth China may be able to maintain in a steady state but his point about a relatively high level being possible for at least the next decade does indeed seem to be holding good.
The final line of his conclusion (P.44) should remind all investors of the need to be diversified into this space, ‘..on the basis of its favourable economic fundamentals, the rising investment in intangible capital such as human capital and R&D capital, and the expectation that the labour (household) share of GDP is likely to rise in the future, China should also be able to continue growing at an average annual rate of around 7% for the decade following, also more or less independently of what happens in the rest of the world.’ [My bold and italics]
The latter point should be of especial interest to the CAPM/beta-alpha/efficient-frontier brigade who still manage (sadly, but that’s another story) the bulk of the world’s institutionally invested funds.
Happy Sunday.
[You can access the paper in full via this link What Makes China Grow?]