Mike Shiao, investment director, Invesco Hong Kong

Comment: Demographic change in China fuels transition to consumption- and services-led economy

China’s economic rebalancing will stimulate higher-quality growth while creating new investment opportunities in consumption- and infrastructure-related areas, according to Mike Shiao (pictured), investment director at Invesco Hong Kong…

Demographic developments in the China are adding impetus to the government’s efforts to reduce the country's dependence on external demand by shifting the growth composition towards domestic activities.

China’s rapid urbanisation and increasing numbers of university graduates entering the workforce have supported the government’s policies to transition to a more domestic-driven economy, with services taking a more prominent role as manufacturing activities fade. China’s rapid urbanisation has seen about 21 million people move to the cities each year over the past 10 years. At the same time, China’s graduate population more than doubled from 3.6% to 8.9% of the population between 2000 and 2010, with an estimated 8 million graduates looking for employment each year. Both trends are fuelling demand for urban and value-added jobs.

In step with the demographic transition, China’s current 12th Five-Year Plan features responsive policies including measures to stimulate consumption relative to exports and investment, with an emphasis on upgrading traditional industries and support measures to promote service industries. The emergence of higher-skilled, value-added industries will compensate for the structural decline in China’s manual workforce resulting from a combination of better education and migrant workers upgrading their skill set.

Consumer discretionary companies will be a key beneficiary of this trend amid the recent wage inflation and the government’s policies to raise disposable income. There will be vast opportunities on the infrastructure front as urbanisation is likely to drive housing demand in urban areas for years to come. The investible universe along the value chain is considerable and includes building materials, cement and other peripherals.

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