Here’s an easy question: what is the world’s fastest growing economy? China, of course. Second only to the U.S. in economic might, China is the top global manufacturer. Four of the world’s biggest banks—as well as 95 of the Fortune Global 500 companies—are Chinese. The world’s most populous country, whose GDP grew 7.8% last year, is also the biggest foreign creditor of the U.S. Many believe it’s only a matter of time until China becomes the world’s most powerful economic force, and its projected ascent will bring opportunities for Canada’s institutional investors. Since the Chinese economy is transitioning from an export-led model to one driven by domestic consumption, experts say investors will find the best deals in businesses catering to China’s burgeoning middle class—anything from shopping malls and grocery stores to Internet service providers. However, potential investors should be wary of risks relating to corruption, bureaucratic red tape and lack of familiarity with Chinese culture.
Investment tips
Look for opportunities in businesses catering to domestic demand: “Across the board, tap into that growing middle class. Food retail makes sense to us [as well as] retailers in general.” — Thomas Melendez, portfolio manager, MFS Investment Management
Consider the risks: “There’s always going to be currency risk. It’s expensive to hedge currencies in emerging markets. [But] most people would agree that the Chinese currency will go up over time.” — Michael McMurray, senior consultant, Pavillion Advisory Group
Understand the culture: “The level of transparency is improving. But knowing whom you should be speaking to and whose palms you need to grease—that is a very challenging thing to do. The form [bribery] assumes is an evolving entity. It’s no longer as blatant. And you cannot learn it in Canada.” — Josephine Smart, professor of anthropology, University of Calgary
In 2052, China will surpass the U.S.
Population: 1.2 billion—more than three times bigger than the U.S.
GDP: About $40 trillion—almost equal to the combined GDPs of all 33 countries in the Organisation for Economic Co-operation and Development
Economy: Four times bigger than in 2012 and more than two times larger than the projected U.S. economy
Source: 2052: A Global Forecast for the Next Forty Years by Jorgen Randers
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