China prepares for CCP’s 100th anniversary

JULY 1, 2021 will mark the 100th anniversary of the Chinese Communist Party ( CCP), currently led by President Xi Jinping. This milestone will undoubtedly be celebrated in China, where its political leadership has prepared its economy for this event in the last 10 years.

In 2010, then- president Hu Jintao said the country’s GDP should be twice as large in 2021; an accumulated GDP growth of 100 percent was targeted. Compare that with the total GDP of Western Europe, which did not increase much when measured in absolute numbers. Despite the fact that China’s economy comes from a level lower than the West’s, the 2010 target was quite ambitious if measured in GDP per capita. It would always be interesting to see if ambitious goals are met, but what’s important for investors is this: would China’s economy be fit when the anniversary is celebrated?

In any current assessment, Covid- 19 is on top of mind, and it will play a role in China’s economic ambition. Had the coronavirus pandemic not emerged, China would have probably almost reached its target. Maybe 98 percent. But because of the Covid- 19 crisis, that target is now out of reach.

China has made great efforts to free itself from Covid19, and extensive efforts have been and are being exerted to contain new cases. Last week, 12 new coronavirus cases were found in the city of Qingdao, which has 9 million inhabitants. During the first week, 3 million people were tested; the plan was to test all 9 million. If China manages to keep its infection numbers low, then its economy would appear fitter than many other economies around the world. That, in itself, is interesting, but of course, it is essential to see how China’s economy fundamentally develops.

In the coming week, the CCP will hold its annual congress, which will take place in the shadow of a third- quarter GDP growth rate of 4.9 percent against the expected 5.2 percent. As such, private consumption is increasing at a satisfactory level, which is understood in the sense that the progression follows economists’ expectations. But I argue that the boost in private consumption is not strong enough to make the economy really fit. This is in line with consumer confidence, which still lags behind its pre- coronavirus level.

To further boost domestic demand by increasing private consumption, the congress should, among other things, discuss the next step, which is developing the “dual” economy. My expectation is that the conclusions on this, including some growth initiatives, would be presented in the New Year. It would surprise me if these are reforms where economic growth could become noticeable before the anniversary party.

My position is that companies from the private sector, as many outside China would put it, are those parts of the country’s economy that are fittest. Just like in the United States, China has its technology and web giants that are really growing and have colossal growth ambitions. This will have a major impact on how fit investors experience China, and I have the impression that an increasing number of them are becoming aware of the potential. It is precisely in the private sector that investors would benefit to have their focus, as far as investment opportunities are concerned. As always, many are surprised by how fast developments happen in China.

A giant company like Alibaba naturally has an appetite for more online revenues, which is why it is entering the sector selling “lifestyle” products or services, such as food delivery, though it can also be movie tickets. Just to enter the market, Alibaba bought into Ele. me, which was valued at $ 9.5 billion in 2018 and which only gave a limited position within this market segment. The dominant company here is Meituan Dianpi, which has dominated this segment in the past 10 years and is now worth about $ 180 billion. This firm aims to process 100 million purchases through its platforms every day, which is quite ambitious, even for a country as big as China. In a number of sectors, one finds similar growth opportunities, so many investors will surely experience China as quite fit for the centenary celebration.

(Note: In adherence to our company’s code of conduct in the columns wewrite, we must disclose that our investment fund, Lundgreen’s Capital–China, has investments in Alibaba and Meituan Dianpi. These investments, however, do not affect the conclusions of this column.)

Peter Lundgreen is the founding chief executive officer of Lundgreen’s Capital. He is a professional investment advisor with over 30years of experience and a power entrepreneur in investment and finance. He is also an international columnist and speaker on topics about the global financial markets.