All eyes are on China. Is it time to hit the panic button, or are doom-and-gloom headlines overblown? Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), helps answer these questions in his latest industry letter.
Russell was in Hong Kong for the 2016 Asian Financial Forum (AFF), held January 18-19. Here are his key takeaways:
- The most pressing concern was the extent of economic slowdown in the country and whether domestic consumption can gradually replace the traditional growth engines of investment and exports.
- Consumption only accounts for 36% of China’s GDP, compared to more than 60% of GDP in most industrialized countries.
- The consensus among the participants at the AFF was for the Chinese economy to grow in the 6% to 7% range in 2016. The economy is of such scale and scope that momentum will inevitably continue, and policy-makers will muddle their way through the tough patches. The country is likely to avoid a so-called “hard landing.”
Russell notes investors appear less convinced of a soft landing than pundits, “influenced by the collapse in the Chinese stock market and the dithered response of Mainland policy-makers.”
Implications for Canada
The expansion of China’s service sector and the growth of the middle class present opportunities for Canada, says Russell.
“Canada has demonstrated comparative advantage in areas like agricultural products, foodstuffs, bio-technology, pharmaceuticals, health care, clean tech, environmental services, and financial services such as insurance and wealth management. Growing demand for these products and services in China will provide a needed catalyst for continued expansion of Canadian businesses that specialize in these areas.”
The financial industry’s main challenge is to find ways to satisfy the offshore investment needs of Chinese institutions. “Diversified managed fund products specialized in high-yield investments in Canadian high-tech, bio-tech and clean-tech companies, health care, and infrastructure could fit the Chinese investment criteria,” says Russell.
“These funds would need relationships with Hong Kong financial institutions for access and distribution to Chinese investors. The large Canadian banks and insurance companies will continue to build out their existing wealth management and insurance businesses directly into China through joint ventures, or projected through the Hong Kong platform.”