Consumption, healthcare and technology are three sector picks for investing in China, said CITIC Capital’s top executive on Tuesday.
“For us, the top priority … is still on consumption, because it’s still growing at a higher rate than GDP growth,” said Zhang Yichen, chairman and CEO at CITIC Capital, the flagship investment arm of Chinese state-owned conglomerate CITIC Group.
China’s GDP growth was 6.1%, down from 6.6% in 2018 as the economy took a hit from its bitter trade war with the U.S.
Speaking to CNBC at the World Economic Forum in Davos, Switzerland, Zhang said health care is also an important sector as the Chinese society is aging rapidly, so there’s robust demand for good health-care services.
Another potential area for investment is technology services due to the potential decoupling with the U.S. in that area, Zhang said.
In the area of database software, “nobody in China will think of against competing with Oracle because that’s the international, the industry standard,” he said. But now, “decoupling could happen any minute, you cannot possibly run that risk, so there will be domestic competitors in that field as well.”
Beijing has been managing a transition of its economy from an export-driven manufacturing giant to one lead by domestic consumption.
Zhang said CITIC Capital has been focusing on “a lot of” buyouts in China over the last several years to deal with the consequences that come with overcapacity in “almost every” industry in China.
“Consolidation was needed to improve the return on capital, hence reducing the leverage through the improvement in cashflow, so buyout is clearly on the rise,” he said.
Going forward, “most Chinese businesses need to improve themselves through expanding internationally,” Zhang said.
However, “given the overall trade tensions, all the protectionism on the rise, we’re clearly cautious on that front as well,” he added.