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In our recent two-week tour around China, the essence of the new Chinese Communist Party administration’s policy intentions became increasingly clear to us.  Political legitimacy and stability remain the twin goals of the Party/State.

However, the policies being embraced to achieve these goals have begun a watershed shift, which should impact how investors think about China in the years to come.

Slower, but More Sustainable Growth

Over the past three decades, growth-at-any-cost has been the paramount goal. In the coming decades, in our view, the focus will be on sustainability, fairness (social mobility), and productivity improvements. Quality growth along with economic reform will be used as policy instruments to achieve these objectives.

Increased Social Mobility and Policies to Promote Equity and Fairness

There is a decided shift toward greater fairness and equity across society. After decades of unrestrained – and occasionally reckless – growth, policy has now begun to emphasize social mobility through urbanization, housing and land reform, and efforts to improve outcomes for the 50% of Chinese still living in rural areas. We are also witnessing improvements and experiments in healthcare delivery, economics, and insurance. The enormous popular support for Xi Jinping rests on perceptions that the decades of illegitimate wealth, party corruption, and increases in inequality are finally being addressed.

In parallel, there appears to be a determined effort to improve provincial and municipal governance. There is heightened discussion about fiscal reform to enhance the capacity of local governments to fund their growing social burdens (education, healthcare, pensions). We have long believed that redistribution designed to improve social mobility would have a pronounced impact on sustainable growth given a higher propensity of the urban poor to consume.

Improvements in Environmental Sustainability

A renewed focus has also been placed on environmental sustainability. This was evident this winter in Beijing, where we experienced a week of the least smoggy skies we have witnessed in years. This environment change was the result of substantial reductions in manufacturing and thermal coal capacity. We continue to believe these reductions underpin the prospects for sustainably rich earnings for mining companies.

Supply discipline helps Beijing achieve the twin goals of environmental improvements and stronger cash flow capacity in the commodity sector – an important source of credit risk in the financial sector. We firmly believe that supply discipline in China, coupled with investors’ continued nausea following a decade of extraordinary metal price volatility, will underpin strong cash flows and dividends (which investors demand) for companies such as Glencore, Vale, and Anglo American.

Orderly Corporate Deleveraging

We are also seeing a determined focus on financial stability and orderly corporate deleveraging. We continue to disbelieve naysayers’ calls for an inevitable “credit event,” following the tremendous increase in corporate leverage over the past decade. There appears to be coherence now about the importance of deleveraging – a focus evidenced by the new financial stability committee, which has been created and tasked with orderly corporate deleveraging. There has been a massive regulatory crackdown on unhealthy “wealth management” products (yawning asset-liability duration mismatches, unsustainable yield guarantees, etc.) and a determination to bring credit from the shadows into the capital markets or back onto bank balance sheets.

Focus on Profitability and Governance in State-Owned Enterprises

Corporate profitability and governance are also a key focus for state-owned enterprises (SOEs). While privatization seems unapproachable, there is a strong focus on building stronger, more profitable SOEs. There have been a handful of very large industrial mergers designed to improve market structures, profitability, and cash flow to invest in growth. It is clear that a wave of industrial restructuring could occur over the next few years, which could create very interesting investment opportunities.

Other trends that bear watching include:

  • Declining levels of investment, but higher returns on investment as the private sector continues gaining share and as restructuring improves market structures and profitability in the state sector.
  • Heightened innovation and powerful technology transformation across traditional verticals including retail, logistics, finance, and transportation. China has overtaken the United States in the speed of transformation in e-commerce, Internet advertising, and content, and it will do the same in many new industries largely because it has fewer entrenched and competitive alternatives. Additionally, China has tremendous human capital and, because of increased opportunity there, the country has become a magnet in recent years for the Chinese diaspora across the world to return.
  • The emergence of globally competitive Chinese companies, particularly in technology. We believe Alibaba, Didi, CTRP, and Tencent will surprise investors with meaningful acquisitions, partnerships, and expansions throughout the developing world over the next few years.

Ultimately, Emerging Markets Are All About China

The environment today continues to reinforce our long-held view that, at their core, emerging markets are all about China. This goes beyond just the scale of the factual data, though we should bear witness to some of those facts:

  • China’s GDP of $11.4 trillion is larger than the combined GDPs of Africa ($2.2 trillion), Latin America ($3.6 trillion), India ($2.3 trillion), and Russia ($1.3 trillion).
  • JP Morgan estimates that China will contribute roughly 33% to global GDP growth between 2017 and 2019. In the emerging market (EM) world, China’s growth contribution will be 57% over the same time period.
  • China’s stock market capitalization is second only to the United States at roughly $12 trillion, having grown from just $0.7 trillion in 2003.
  • China represents 29.7% of the MSCI EM Index, which has yet to account for the impact of China’s A-share market. In August 2018, A-shares will begin to be phased into the index. It is estimated that, upon full inclusion, China could represent up to 37.2% of the index.

Perhaps more significant than the data above is the increasing dependence of emerging markets on China. The mainland’s relevance in resource consumption globally has been well documented, though it is unlikely that many investors fully appreciate its significance – 13% of Russia’s oil, 28% of Brazil’s iron ore, 33% of Indonesia’s thermal coal, and 40% of Chile/Peru’s copper all go to China. Further, as China extends its newfound discipline in the resource space – electing for environmental awareness over exploitation of its own (often sub-par) reserves – this discipline feeds into the narrative of greater stability in resource prices, underscoring some of our sector investments outside China (Glencore, Vale, etc.).

China’s role as a trading partner puts it in a unique position. Indeed, it is the largest trading nation in the world, at $3.96 trillion in net trade activity in 2015. That year, 101 countries and regions had more trade with China than the United States, while 43 (mostly developed countries) had less. In 2014, China accounted for 48% of Taiwan’s exports, 34% of the Philippines’, 33% of South Korea’s, 49% of South Africa’s, 28% of Chile’s, and 24% of Malaysia’s.1

What does this mean for our approach to EM investing over the next few years? While we will continue to embrace our bottom-up approach of seeking out the best companies in the world, it is increasingly clear that an in-depth and thorough understanding of China’s current and future macroeconomic picture, political imperatives, and impact on the broader EM universe is necessary to continue the success we have enjoyed to date. 

The Unstoppable Rise of China

The unstoppable rise of China has been one of two core themes in Oppenheimer Developing Markets Fund (ODMAX) in recent years (the other is Technology). A glance at our country weightings would indicate that, as of December 31, 2017, 23.9% of our holdings are in China versus the benchmark’s weight of 29.7%. However, this weighting belies our true exposure to China, as expressed through investments oriented to China demand. These include our luxury investments, including Kering (2.4%), LVMH (1.6%), and Prada (1.1%); as well as our cosmetic exposure in Korea (LG H&H and AmorePacific, for a combined 2.4%). Through Hong Kong, our holdings in AIA (2.9%) and HKEX (0.5%) are plays on financial and capital market liberalization on the mainland. Adding these would take our China exposure to 31.9% – and we are on the hunt for more. Even our mining exposure (Glencore, Grupo Mexico, Anglo American) are names that ultimately are driven by cyclical vacillations in the unstoppable growth story that is China.

Of course, our history demonstrates that we are, in fact, benchmark agnostic. Recall that we had more than 1,000 basis points of our holdings in American Depositary Receipts (ADRs) before benchmark changes began to incorporate them. At the end of the day, our approach to China is the same one we apply with all of our investments: We seek exceptional companies with durable, long-tailed growth and optionality, and which have significant and sustainable advantages. We avoid capital-intensive and highly cyclical companies with little competitive differentiation (these include the finance-heavy MSCI China and A-share markets). And generally speaking, we are not enamored with the idea of SOEs, most of which inherently carry the baggage of inefficient balance sheets, bloated employee rosters, and moral suasion.

That said, we are not blind to a lot of fertile ground in the A-share and private markets in China. Gravitational forces will likely redefine the compositional make up of Chinese names in the index, alongside the growth-driven increased weight of the country. We have found some excellent opportunities in the A-share market, like Jiangsu Hengrui (pharmaceuticals) and Kweichow Moutai (the world’s most valuable spirits company); as well as in private companies that will soon go public (Didi, the world’s largest ride-hailing company). We believe we remain at a relatively early stage of the globally transformative story that China represents.

 
  1. ^Marukawa, Tomoo, “The economic nexus between China and emerging economies,” Journal of Contemporary East Asia Studies, April 2017.  https://doi.org/10.1080/24761028.2017.1312755.
  2. ^Marukawa, Tomoo, “The economic nexus between China and emerging economies,” Journal of Contemporary East Asia Studies, April 2017.  https://doi.org/10.1080/24761028.2017.1312755.

中国实地考察:中国观察

随着中国日趋成熟,其不断演变的制度更看重持续发展,而非快速发展。

 

作者:Justin Leverenz 

在近期两周的中国之旅后,新中国共产党管理政策的本质越来越清晰。政治合法性和稳定性是党/国家的两个目标。

但是,为了实现这些目标而实行的政策已开始发生方向性转变,这会影响投资者未来对中国的看法。

更慢但更具可持续性的发展

过去三十年的主要目标是不惜一切地谋求发展。我们认为在未来几十年,中国会侧重于可持续性、公平性(社会流动)和改善生产力。高质量增长与经济改革将会成为实现这些目标的政策工具。

改善社会流动和政策以促进平等和公平

社会的公平和平等在明显得到改善。在几十年不受限甚至疯狂的增长后,中国的政策已开始强调通过城市化、住房和土地改革实现社会流动以及为依然生活在农村的一半中国人改善成果的举措。我们还注意到了医疗服务、经济和保险方面的改进和尝试。习近平之所以受到巨大支持,是因为民众认为几十年的灰色财富、党内腐败和不平等加剧问题终于得到了解决。

与此同时,中国似乎决心改善省级和市级管治。有关加强当地政府解决逐渐加重的社会负担(教育、医疗、养老金)能力的讨论也越来越多。我们一直认为,鉴于城市贫民越来越愿意消费,以改善社会流动为目标的重新分配会对可持续发展有显著影响。

环境可持续性改善

中国也开始关注环境可持续性。这体现在今年冬季北京的雾霾是近几年来程度最轻的。这种环境的改变是由于制造和热能煤产能的大幅度削减。我们依然认为,中国的产能降低提高了采矿公司实现可持续高营收的可能性。

供应控制帮助北京实现了改善环境和加强商品行业现金流能力这两大目标,后者乃是金融行业信用风险的主要来源。我们坚信,中国的供应控制以及十年金属价格波动给投资者带来的持续抵触情绪将有益于提高 Glencore、Vale 和 Anglo American 等公司的现金流和股息(投资者需求)。

企业有序去杠杆化

我们还看到中国对金融稳定性和企业有序去杠杆化的决心。在过去十年企业杠杆的巨大增长后,反对者认为会发生不可避免的“信用事件”,我们对此继续持反对态度。中国目前对去杠杆重要性似乎达成了共识,这体现在刚刚成立的负责企业有序去杠杆化的金融稳定性委员会。监管部门对不健康“财富管理”产品(资产债务持续期大规模错配、不可持续的收益担保等)进行大规模打击,同时下决心将信贷从阴影中带入资本市场或者带回银行资产负债表。

聚焦于国有企业的营利能力和管治

企业营利能力和管治也是国有企业 (SOE) 的一个重心。尽管私有化尚且无法实现,但中国越来越关注建立更强大、更赚钱的国有企业。少数几笔大规模行业合并案旨在改善市场结构、营利能力和投入增长的现金流。行业重组浪潮定会在未来几年发生,这会带来非常有趣的投资机会。

值得关注的其他趋势包括:

  • 投资规模下降,但由于私营行业占比持续上升以及重组改善了国有行业的市场结构和营利能力,因此投资回报变得更高。
  • 传统垂直行业(零售、物流、金融和交通运输)的创新力提升和高新技术转变。中国的电子商务、互联网广告和内容的转变速度已超过美国,很多新行业也将会如此,这是因为在中国,扎根市场的竞争性替代品较少。此外,中国还有着巨大的人力资本,而且由于机会的增多,中国在近几年吸引了大量的海外华侨回归。
  • 具有全球竞争力的中国公司陆续出现,尤其是在科技领域。我们相信,阿里巴巴、滴滴、携程和腾讯未来会通过在发展中国家的有效收购、合作和扩张给投资者带来惊喜。

最后,新兴市场主要看中国

当下的环境继续巩固着我们长久以来的观点:新兴市场主要看中国。这不仅是基于事实数据,但我们应该注意到以下这些数据:

  • 中国 11.4 万亿美元的 GDP 超过非洲(2.2 万亿美元)、拉丁美洲(3.6 万亿美元)、印度(2.3 万亿美元)和俄罗斯(1.3 万亿美元)的 GDP 总和。
  • JP Morgan 预测,2017 年至 2019 年,中国会向全球 GDP 增长贡献大约 33%。在新兴市场 (EM) 世界,中国的同期增长贡献将会达到 57%。
  • 中国股市的资本总额约为 12 万亿美元,仅次于美国,2003 年仅为 0.7 万亿美元。
  • 中国占 MSCI EM 指数的 29.7%,且未算入中国 A 股市场的影响。2018 å¹´ 8 月,A 股将逐步纳入该指数。预计在全面纳入后,中国将占到该指数的 37.2%。

或许比上述数据更显著的是中国新兴市场的愈发独立。大陆与全球资源消耗的相关性有据可循,尽管很多投资者可能无法全面理解其重要性。俄罗斯 13% 的石油、巴西 28% 的铁矿石、印尼 33% 的热能煤和智利/秘鲁 40% 的铜全都出口到中国。此外,随着中国扩大对资源领域的新控制计划(出于环境保护目的,避免勘探本国较少的资源储备),这项控制将有助于更好地稳定资源价格,有益于我们在中国海外的一些行业投资(Glencore、Vale 等)。

中国作为贸易合作伙伴的角色使其处在一个特殊的位置。的确,中国是全球最大的贸易国,2015 年的贸易活动净值达到 3.96 万亿美元。当年,全球 101 个国家和地区与中国达成的交易数量超过美国,另外 43 个国家和地区(大部分为发达国家/地区)与中国达成的交易数量则低于美国。2014 年,中国占台湾出口量的 48%,占菲律宾的 34%,占韩国的 33%,占南非的 49%,占智利的 28%,占马来西亚的 24%。2

这对于我们未来的新兴市场投资方法有何影响?尽管我们还会采用自下而上的方法(即寻找全球最出色的公司),但要延续迄今为止所取得的成功,我们必须深入而全面地了解中国目前和未来的宏观经济状况、政治指令以及对整个新兴市场的影响。

中国不可阻挡的崛起

中国不可阻挡的崛起是近年来奥本海默发展中市场基金 (ODMAX) 的两大核心主题之一(另一个是科技)。我们的国家权重显示,截至 2017 年 12 月 31 日,我们 23.9% 的投资位于中国,而基准权重为 29.7%。但是,该权重并不能体现我们对中国的实际仓位,这需要看待面向中国需求的投资。其中包括我们的奢侈品投资,包括 Kering (2.4%)、LVMH (1.6%) 和 Prada (1.1%);以及我们对韩国化妆品的投资(LG H&H 和 AmorePacific 共 2.4%)。我们通过在香港对 AIA (2.9%) 和 HKEX (0.5%) 的投资应对大陆的金融和资本市场自由化。加上这些投资,我们对中国的仓位达到 31.9%,并且我们还在寻求更多机会。甚至是我们的采矿投资对象(Glencore、Grupo Mexico、Anglo American)最终也受到中国不可阻挡发展历程的周期性振荡的影响。

当然,我们的历史显示我们其实并不迷信基准。回忆过去,在基准变化开始纳入之前,我们有超过 1,000 个基点的持股为美国存托凭证 (ADR)。毕竟,我们对中国的投资方法与其他所有投资无异:我们寻找的是具有持久的长尾增长和期权性以及显著可持续性优势的优秀公司。我们避免投资竞争差异性较小、高度周期化的资本密集型公司(其中包括以金融为主的 MSCI China 和 A 股市场)。一般而言,我们不倾向于国有企业,因为大部分国有企业都存在资产负债表低效、员工过多以及道义劝告问题。

即便如此,我们还是注意到了中国 A 股市场和私营市场的一些肥沃土壤。万有引力以及受增长驱动的更高国家权重将有可能重新定义该指数中的中国公司名单。我们在 A 股市场发现了一些出色的机会,例如江苏恒瑞(制药公司)和贵州茅台(全球最有价值的烈酒公司);以及即将上市的私营公司(例如全球最大的打车服务公司——滴滴)。我们相信自己尚处于中国掀起的全球变革的早期阶段。