Two Key Assets for China’s Future Development

There seems to be a lot of concerns about the China #economy and how geopolitics is affecting it.

The ๐Ÿ‡จ๐Ÿ‡ณ economy is transitioning towards a new development model. This is driven by China’s own national priorities with or without geopolitical considerations. The current geopolitical tensions are accelerating this process and also at the same time adding risks to this process.

China’s most important asset both for its own economic future and for its position in the world is its ๐—ถ๐—ป๐—ฑ๐˜‚๐˜€๐˜๐—ฟ๐—ถ๐—ฎ๐—น ๐—ฐ๐—ฎ๐—ฝ๐—ฎ๐—ฐ๐—ถ๐˜๐˜†. China’s industrial capacity is bigger than the ๐Ÿ‡บ๐Ÿ‡ธ ๐Ÿ‡ฏ๐Ÿ‡ต ๐Ÿ‡ฉ๐Ÿ‡ช put together.

We make everything for the world but this capacity’s value is still relatively too low. We’ve been doing better of course. But overall our industrial capacities value still has much room to grow.

We make everything for the world but this capacity’s value is still relatively too low. We’ve been doing better of course, for instance the iPhone, 10 years ago only 3,5% of its value was created by China now it’s more than 25 %. But overall our industrial capacities value still has much room to grow.

To improve we need large-scale transformation of our industrial capacity so that it is enabled by technology, and also to build capacities in new industries such as those sectors driven by low carbon emissions.

China’s entire industrial capacity probably generates between 5 to 10 trillion US $ per year, 5 as industrial output and maybe 10 at the market endpoint. But the value-add of this capacity is still below 20%.

I would guess that our manufacturing generates perhaps 12 to 15 % gross margin, which is too low. Higher quality development would have it generate maybe 30 to 40 % gross margin. Now on such a large base this value increase would be enormous.

Semiconductors alone probably accounts for 5 to 10 points and we spend nearly half a trillion US $ importing semiconductor chips and related products.

This is more than crude oil and iron ore combined, as we know China is the largest crude oil and iron importer in human history.

China’s national priority going forward is not to chase mere the quantity of GDP growth but the quality.

The current geopolitical tensions make this process a national imperative. It’s now not just driven by economics but by national security.

In the next 10 years there will be tremendous investment and growth opportunities manufacturing, technologies, supply chain optimization, AI, semiconductors, life sciences and medical equipment, new alternative energy like EV and new materials.

All these makes the west particularly the U.S. feel threatened and insecure, and that’s understandable.

America sees its leadership position in technology innovation the bedrock of its global dominance. So they must compete.

But perhaps because their political system is inefficient and their society is polarized at the moment, they seem to feel they’re unable to compete effectively by improving their own national capabilities.

So they resort to geopolitical tactics to weaken its rival.

This adds significant risks to Chinaโ€™s path forward.

At the moment pessimism abounds about the Chinese economy, you know Covid lockdowns, real estate bubble, big tech blues, geopolitics, you name it, but these are short-term challenges.

Everyone faces short-term challenges; if not these, then something else will, but in the long run, I recommend that we refer to the 14th Five-Year Plan. It sets specific goals for a broad range of sectors manufacturing, technology, AI, semiconductors, Net-zero, R&D, and etc.

In the next 10 to 20 years, compared with the rest of the world China will be the continent of stability and growth.

Another key asset for China going forward in the future is political predictability. We know who will be in charge and what policies they will implement.


Don’t Bet Against the Five-Year Plan is a truism when it comes to investing in China.


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