Domestic consumption the missing link for China equities

Achieving sustainable growth in China will require its leaders to move beyond the infrastructure and exports story and focus more on fuelling domestic consumption. 

Achieving sustainable growth in China will require its leaders to move beyond the infrastructure and exports story and focus more on fuelling domestic consumption. 

AMP Capital head of Greater China equities Patrick Ho said China's phenomenal growth in the last 30 years had not come without a price, and the (Chinese) Government would need to bolster its social stability to remain an attractive investor destination. 

"[China] is back on track but we are not back on track to the 'golden' time of what we call 2004, '05, '06 and '07," he said. 

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According to the 2010 'China Household Finance Survey', the national median household income was around $17,500 per annum, compared to $559,000 for the top 1 per cent. 

"We have 1.3 billion people and, frankly speaking, maybe 70 or 80 per cent of people are living on the median level," Ho said. 

"In order to manage (China's) economy going forward, the new leadership needs to pay attention to this." 

Ho said China's new Government will need to address the nation's ageing population, its reliance on exports and investment, and meet the demands of the empowered middle class. 

Although demand for infrastructure investment has risen by around 15 per cent per annum for the last 12 years, Ho said equity investors needed to think about China "in a different dimension". 

One of the main agendas China's new leaders will be pushing for is what Ho describes as the 'new' way of urbanisation - which means doing more than simply migrating people from rural areas to the city. 

"They have a house, they may have children - people are demanding a bit more (in terms of) quality of life," he said. 

"In order to boost domestic consumption you need to create that."