As we enter the Year of the Rat, headlines are still fixated on a slowing Chinese economy. The latest data release of China's 2019 GDP growth at 6.1% immediately sparked a chorus of headlines sounding alarm that the Chinese economy is now growing at its lowest since 1990, with many blaming the trade war for the slowdown.
Despite the short-term noise, China's economic circumstances and demographics present a compelling opportunity. The country has transformed from an export driven and rural economy into a global manufacturing and technology superpower. Strong structural growth drivers are apparent in several sectors across China's New Economy, and growth rates still stack up well versus most markets. While the near-term economic growth should be significantly hit by the Coronavirus situation, we remain confident on the following areas which are secular trends.
After an impressive performance last year, there is still huge potential for the Chinese vaccine market to further expand. The industry size has grown from 25.7 billion RMB in 2017 and is expected to reach 100 billion RMB by 2030, thanks in part to a push on behalf of the Chinese authorities for a reorganization of the sector following several scandals. Furthermore, China's vaccine penetration and spending per capita is still fairly very low when compared to developed and even emerging countries. No doubt the current mysterious coronavirus cases breaking out in China will also increase people's sensitivity regarding the importance of vaccinations.
China already dominates the world's 5G scene in network scale and is way ahead of the US in terms of roll-out. Faster connectivity has created an even greater demand for data storage and data centers are set to be one of the biggest investment themes for China this year, offering the potential to earn higher returns than other real estate acquisitions. China's telecom service sector is also set to play a pioneering role in the 5G roll-out and is expected to receive a boost from capital expenditure in this area.
Consumption across consumer products and through e-commerce companies continues to be a powerful theme in China as populations rise from poverty and the middle class expands. Despite an excellent performance in 2019 we believe that online retail penetration rates will continue to rise. People living in low-tier cities and rural areas have even higher purchasing power as their living cost is much lower, and e-commerce offers these types of consumers access to luxury goods and many other products that they could not previously purchase.
China's home-appliance market is huge and still growing. The outlook is aided by a flourishing middle class with rising disposable income, a resilient housing market and an increasing appetite among poorer rural consumers for large home appliances (particularly air conditioning units) known as white goods. Chinese property developers are also selling more fully fitted homes in a bid to aid residents in their pursuit of a better lifestyle, generating another source of demand.
Haiyan Li-Labbe is Greater China analyst at Carmignac