China embarks on transition to consumption-centred economy as Beijing moves to unleash spending power: investment guru
- Fang Fenglei, founder and chairman of Hopu Investment Management, says the transition will take a decade
- Issues confronting China – property-sector woes, local government debts and the debts of small and medium-sized banks – are all manageable, Fang says
Weak domestic consumption remains the “real worry” for China’s growth outlook, but there are encouraging signs that Beijing is serious about boosting income and transitioning to an economy that is more centred on consumer spending, according to investment guru Fang Fenglei.
“China was used to putting a discount on enhancing the consumption power of peasants and ordinary consumers, because it had to focus on development over the past decades,” he said. “Now with the GDP [gross deomestic product] per capita reaching US$13,000, the fundamental matter of increasing income levels should be resolved.”
There are 80 million civil servants in China plus numerous state-owned enterprises that are awaiting a salary boost. As long as the income situation of this huge population improves, Fang said, consumption power will be released.
Beijing is keen on rekindling confidence in the overall economy after the consumer price index remained unchanged year on year in September, signalling sluggish demand.
Speaking at a fireside chat at the forum, Fang said that the property sector’s woes, local government debts and the debts of small and medium-sized banks are also “confronting China” currently.
“The direction is very clear: to increase affordable housing for citizens,” he said, noting that the Singaporean government supplies 80 per cent of affordable housing, whereas in China the government supplies 20 per cent.
While this problem is less severe for China than for Japan in the late 1990s or for the United States, 300 million Chinese people will be waiting to buy their first houses in the coming three to five years, Fang said.
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Regarding local government debts that total US$10 trillion, Fang said that most of the money has been spent on infrastructure and that China’s debt-to-GDP ratio is 20 per cent.
“[It] is the lowest among all of our governments,” he added. “So solving this problem does not seem to be too complicated.”
As for small and medium-sized banks, Fang said restructuring is feasible.
“There are 3,000 plus banks in China, but the six largest banks account for 60 per cent of the total financial assets, which are stable,” he said.
However, Fang highlighted his concern on the discrepancy of interest rates between the US and China by saying that “we cannot put up with this long term differentiation”.
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Zooming out to look at the US-China relationship, Fang cited figures that show the combined GDP of both countries accounts for 40 per cent of global GDP now, with the number likely to hit 60 per cent by 2050.
“So both countries are giant and they need to be responsible,” he said, noting that the ties between China and the US have stabilised recently.
About the cross-strait relations, Fang believes that “there will be confrontation as long as Taiwan seeks independence”.
