China is uninvestable” has been a common refrain within the global investing community in the past few years, particularly among Western-based journalists, analysts and fund managers. Back in March 2022, a widely publicised JP Morgan research report (which was subsequently explained away as a “publishing error”) that described Chinese internet stocks as “uninvestable” — amid the government’s regulatory crackdown on the tech, property and education sectors, zero-Covid lockdowns as well as heightened geopolitical risks after Russia invaded Ukraine — deepened a stock market rout that sent the Hang Seng Index to its lowest level since the global financial crisis. More recent sceptics point to China’s over-investment and excessive industrial capacity, deflation and falling profitability, over-reliance on exports, ageing population and lower total factor productivity, depressed property sector that is dragging on the broader economy, consumer confidence and consumption growth as well as high levels of debts of local and provincial governments as reasons to remain pessimistic on the world’s second-largest economy. Yes, a long laundry list to make sure some, if not all, the negatives stick.
To be sure, many of these challenges exist. The “Made in China 2025” (MIC, first introduced in 2015) was a huge success by most measures (perhaps even too successful by some metrics). Its main goals were to reduce reliance on foreign technology, increase domestic content in manufacturing and become a global leader in high-tech industries, including renewables, new energy vehicles, robotics, telecom, biotech and semiconductors. In short, to make China a global high-tech manufacturing powerhouse. And it is, today. By any yardstick, a remarkable feat of economic transformation. But it has also led to overinvestment and overproduction and, in some instances, a wasteful use of resources, inefficiencies and a low return on investment (ROI), and intense domestic price competition, as well as sparking backlash from other nations over allegations of unfair state subsidies, intellectual property theft and Chinese dumping.
