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Consumers are to drive China's future growth

So far, China's impressive growth rates are rooted in investments. In the future, they will depend on the consumers, explains Louisa Lo from Schroders Investment Management, who is the portfolio adviser of Danske Invest Greater China Class A.

Within recent years the slowdown in the global economy has also hit China, but the country is still experiencing high growth rates compared with those of e.g. Europe. According to Louisa Lo from Schroders Investment Management the Chinese economy will continue to grow in 2013, even though she does not expect as high rates as earlier on. In 2010 China saw periods with growth rates above 12%.

Consumer-driven economy
Louisa Lo is selecting stocks for the investment fund Danske Invest's Greater China Class A portfolio, and she is informing that the recent transfer of power in China where president Hu Jintao was replaced by Xi Jinping implies that the government will continue to focus on stable growth and implement the necessary reforms. The basis for China's growth is therefore undergoing change.Formerly, growth was driven by heavy capital investments, but in the future growth will depend on the Chinese private spending level. Louise Lo is of the opinion that this is positive for the Chinese economy in the longer term.

At the same time, ordinary Chinese flock from the country to the cities. Here they are educated, and the rapidly growing middle class can be pleased with still higher salaries and enough money to live a better life.

“We see a great potential in companies which are producing goods for the increasing middle class. Companies with strong brands, quality products and good service will enjoy the benefits of this development,” says Louisa Lo.

Close to the investments
In line with companies operating in other emerging markets, Chinese companies are not always so “transparent. Therefore, it is a great plus to be close to the companies in which you invest. In her day-to-day work Louisa Lo is working closely with experienced analysts and portfolio managers who all live and work in China.

”Our work consists among others of meetings with interesting companies and business trips all over China. In this way we gather the best possible basis for making the right investment decisions.”

Not everywhere in China they speak the Chinese principal language, mandarin.  Louisa Lo has e.g. invested in a sausage producer situated in a region in which the population speaks Cantonese. Here it is of great value that the equity team speaks the local language.

When we communicate with business executives in their mother tongue, there is less risk of misunderstandings, and we receive more subtle answers to our questions,” she explains.
 

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