![Kaifu Lee, chairman and CEO of Sinovation Ventures [VCG]](https://i0.wp.com/usachinatrading.com/wp-content/uploads/2021/01/Kaifu-Lee-chairman-and-CEO-of-Sinovation-Ventures-VCG.jpg?resize=525%2C296&ssl=1)
Editor’s note: Kaifu Lee is the chairman and CEO of Sinovation Ventures. The article reflects the author’s opinions, and not necessarily the views of CGTN. 2020 was a year full of black swan events. The biggest one is the COVID-19 pandemic and its fallout on the economy. Due to the outbreak, the global economy will inevitably fall into recession, posing grave threats to the investment sector.
China’s economy is the only standout among major economies. According to forecasts, its GDP growth in 2021 can exceed 8 percent. Even so, many offline businesses still struggled. Meanwhile, if the U.S. and European economies face severe problems this year, it will have repercussions on China’s economy. The second challenge is China-U.S. relations, in particular, trade and technological competition issues. The COVID-19 pandemic and China-U.S. relations pose challenges to China’s investment sector. However, I believe they also bring opportunities. Specifically, I foresee six relatively big structural opportunities for China this year and beyond. The first is the online economy. Due to the pandemic, the trend of going online is now gaining momentum. It has led to many changes. The first is in our consumption habits. For example, we are now used to having online meetings or classes. These changes in habits will result in business opportunities – such as online education, office collaboration, livestreaming e-commerce, and online entertainment. Going online also means the economy is more digitally enabled, and many technologies, such as artificial intelligence, can be applied to achieve smarter performance.
The second one is China-U.S. trade friction spreading to the tech sector. We need to develop our own technology at home, whether because some American technology cannot be exported to China, or in the long run, Chinese companies need to become more competitive. We used to completely rely on foreign technology in some fields, but now it is necessary to have domestic alternatives. It is the so-called “indigenous innovation.” The biggest opportunity this brings us must be in the field of hardcore technology, from artificial intelligence, chips, operating systems to medical biology, as well as manufacturing. The third opportunity is not necessarily subject to changes in external context. It is in areas that will naturally grow and benefit from government policies. Healthcare is one such sector that sees prominent opportunities. China’s per capita expenditure on healthcare is still lower than that of the U.S. and Japan. As the country becomes wealthier, the expenditure on healthcare must increase. Now China has introduced various medical and drug reforms, and structural changes in the insurance industry. There are also hopes of using data to bring more efficient hospital operations, and China’s opening of its medical and insurance industries to private companies; these big changes will surely bring huge opportunities. The fourth opportunity is automation, which is very clear in the manufacturing industry. Manufacturing is the cornerstone of the Chinese economy. However, many emerging economies, such as Vietnam, have started taking orders away from China because of their cheaper labor. The average worker’s income in Vietnam is about half of that in China. The best way for China to deal with this challenge is industrial automation. It is inevitable that robots and artificial intelligence will gradually replace human labor, which on one hand will reduce production costs and on the other hand, promote technological advancement.
The fifth area is an industry reshuffle during a counter-cycle of the economy. Assuming that the economy is not doing well and there are no obvious leaders in some fields. Under such competition, there may be an opportunity for one of the players to gain a bigger share of the market through improving efficiency or quality. It can grow bigger when the smaller players fail, even when the industry does not fluctuate. This phenomenon was seen in the history when Uniqlo rose during Japan’s economic recession, as the company gained a bigger market share through high-quality design and reasonable pricing. In China, we see there are many small players in the supply chain and logistics sector. Some are growing, while others are not. The industry can only improve efficiency by achieving economies of scale. Therefore I think there are counter-cyclical sectors to watch with good investment opportunities.
The last opportunity is liquidity-driven. The huge increase in M2 money supply led to the rise of overseas stock markets and domestic technology stocks, boosting returns in the secondary market, as well as sentiments in the primary market. Investors expect tech shares to generate excess returns while their optimism increases. Sectors such as the online economy, and policy-friendly sectors, are all good investment choices.
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