There are investors and funds that are calling for a withdrawal from China. Despite the political course in Beijing, others continue to see growth opportunities. So what about investments in China? "The risks are very dominant," admits investment advisor Meng Si from BNFP Capital to ntv.de. "China is not a democracy and not a market economy," said the China expert. The zero-Covid strategy is also leaving its mark on the economy. But the world community and the financial community could not write off the "supply chain supremacy" for that reason. Gaining independence from China could take "years or decades".
ntv.de: Emerging market ETFs are a popular addition to investors' portfolios. They advise professional investors on investments in China funds. How big is the market and does it still make sense to invest in China?
Meng Si: If you look at the MSCI World stock index, which tracks around 1,600 stocks from 23 industrialized countries, the Chinese market is not very big, it's more of a niche market. But among the emerging economies that fall under the BRIC label, China is the country with the greatest weight. There are still good long-term prospects in certain sectors.
Zero Covid strategy, regulation of tech companies in the country and aging society - it all seems more like a risky bet. Hasn't the world's economic engine passed its peak?
The risks are indeed very dominant. Geopolitical, macroeconomic and liquidity factors speak against an investment in China. The first thing you should ask yourself is what you want: invest long-term or short-term? If you want to gamble, you should wait and watch the market. However, there are structural factors that speak in favor of a long-term investment: There are the supply chains and the competitiveness of Chinese companies. The People's Republic is the most important trading partner of the largest economies in the world. China accounts for one sixth of world trade and one third of global production. The supply chains, which have been painstakingly built up over 40 years with diligence - admittedly also with overexploitation of the environment and poor working conditions - do not disappear into thin air from one day to the next. They don't break because of two years of zero Covid strategy.
It doesn't matter that Beijing trims tech companies like Alibaba or Tencent and wants to redistribute wealth?
The fact that China is not a democracy by Western definition is not new. Even before the pandemic, we were dealing with industrial policy directed by the Communist Party. Beijing has caused a bloodbath in the stock market with its regulation in the tech sector, that's right. But we've seen it around the world lately. This has little to do with Beijing, but with interest rates, liquidity, economic development and the pandemic. We also know redistribution slogans in the West. The companies in China will not be broken. But the industry is managed differently. Nor is it about Alibaba or Tencent. They had their time. 20 years ago Nokia was a super investment, today it isn't anymore.
Nevertheless, a new wind is blowing in China ...
What has been new since the 20th party congress in October is that the previous impression has been reinforced that China's government is wrong-way driver with its zero-Covid strategy. Beijing has been steering a course against the rest of the world with lockdowns in Shanghai since spring 2022. The Chinese economy is also paying the price for this.
Critics call for the economy to withdraw from China. Which investments would then still be interesting in perspective?
Despite all our concerns, we have to admit that China will remain a heavyweight in supply chain management for a very long time. Even if it is now said that companies have to diversify their production quickly. We slept and got into a dangerous dependency. The clock cannot be turned back that easily. Where do the solar panels for the energy transition come from to make Germany more independent of Russia? They are made in China! Our consumer goods still come from there too. Apple is quite unhappy that its key supplier Foxconn's factory is no longer meeting production targets because it is in lockdown. The supply chains are interlocked, even if we don't like it. We will not get rid of our dependency on China overnight. We're talking about years or decades.
How do you rate the fact that Apple wants to open a factory in the USA because of the lockdown at Foxconn in China?
Where is the difference? With whom does Apple want to set up a factory? It's the same partner, Hon Hai Precision Industry. This is the multinational company headquartered in Taiwan, which does business in mainland China as Foxconn Technology Group. Even if the production site is relocated, it remains the same entrepreneur. Companies like Hon Hai are not just building a factory, they are building an entire supply chain. Such projects are large-scale and time-consuming. China's supply chain supremacy has existed for decades. That lead will remain until trading partners find countries that can pack what China delivers.
We recently saw a stock market rally in China. How do you classify them?
In China we have a special market feature: the bond market is completely dominated by institutional investors, private investors play no role at all. Conversely, the stock market is dominated by small shareholders. There are 200 million private investors in China, who are responsible for a large part of the transaction volumes. The problem is: They are very short-term oriented and very easily influenced by rumours. When we see a mini-rally, it's usually triggered by some market rumor. Of course, among the usual suspects is that the zero Covid strategy is being relaxed. Everyone in China is suffering, including retail investors.
So that quickly triggers a flash in the pan?
The Chinese financial market is very young, not mature and settled. It only reopened in the early 1990s. Nor are we dealing with mature and well-informed investors. When talking about stock allocations or investment prospects, one should definitely look at the long-term factors. If you think that these outweigh all the risks, you can invest.
It sounds like this market might not get very old either...
I really hope it's a market that's evolving. Because it would be a shame, not only for the investment community, if the Chinese stock market were lost. That would also be bad for the world community, because the global economy is very closely linked to China. I don't know whether our strategy of "change through trade" was the right one with all regimes, including evil regimes. We made a mistake with Putin's Russia. I don't want to think that the trade policy with China could also have been a mistake. That would be bitter.
What makes you optimistic that this won't happen?
What gives me confidence is that China is not sitting on resources. China itself is dependent on resources and know-how transfer. To sell oil or gas, all they need is pipelines. Supply chain management is more complex. It requires more knowledge, experience and manpower. China cannot afford to say goodbye to the world community or alienate customers.
There are investors who think it is immoral to invest in China. What do you answer to that?
Professional investors are less influenced by their own preferences when making their decisions. Individual investors allow themselves more freedom. These differences in investor mindsets are not uncommon. Look, when we buy shares in VW or other large German companies with a long history, do we always discuss the Nazi past or even avoid these companies for that reason? If we want to be morally above everything else, should we still be driving when we know that Saudi Arabia is one of the largest oil suppliers? According to US secret services, Saudi Arabia brutally murdered the critical journalist Khashoggi in the consulate in Istanbul. Nevertheless, the Saudi Crown Prince Mohammed bin Salman should be protected by Washington. I ask you: can we still buy US stocks?
Do you dare to look forward to next year?
A bull market always occurs at times of greatest pessimism. Given the mood of the end of the world, one can now ask oneself what else should happen? I would therefore say that optimism is the order of the day.
Diana Dittmer spoke to Meng Si
