Is China Driving Emerging Markets?

The goal is clear: China looks to be technologically independent in the next five to fifteen years. How? By creating its own tech giants to be able to compete with their western counterparts. Is it succeeding? The Chinese BATX – tech giants Baidu, Alibaba, Tencent and Xiaomi – are beginning to overshadow the well-known US FAANMG³.

In order to meet its objective, we believe China will increase research and development (R&D) investments into the new high-tech manufacturing industries such as semiconductors (including chip design and equipment); 5G, data centres and software, as well as the photovoltaic and alternative energy.

In Carmignac Emergents⁸, we try to position ourselves on companies which, we believe, will be the leading players within each sub-industry, such as:

• Data centres: GDS Holdings, Ming Yuan Cloud
• Tech components: Lenovo Group

With a 1.4 bn population and a GDP per capita exceeding $10,000⁴, China is one of the world’s largest consumer markets and plays a major role in global trade. Its objective? Expand its domestic market to enhance internal circulation and stimulate consumption, on the back of increasing purchasing power and rising living standards.

We believe China will continue to be an increasingly consumer-driven economy, influenced by the online shopping frenzy witnessed during the COVID pandemic. Yet, in the same way as it seeks to become technologically independent, China looks to rely less on external demand to avoid obstacles to its growth ambitions.

In Carmignac Emergents⁸, we focus on the Chinese New Economy sectors, which mainly address the needs of the growing domestic demand and capitalise on long-term demographic trends, such as:

• eCommerce, Internet and Social Media: JD.com, VIP shop
• Online Entertainment: JOYY
• Education: China East Education
• Connected Consumers: Haier Smart Home

Anti-pollution campaigns have been a major focus for China in the last five years. It continues to implement new policies to fight pollution with the aim of being carbon neutral by 2060⁵, increasing wind power capacity to 3bn kW by 2060⁶, and ensuring all new vehicles sold by 2035 are "eco-friendly’⁷. The goal is to progressively stop manufacturing and selling of conventional gasoline cars.

We believe this trend will further accelerate with Chinese government planning to go fast and big on green developments, and to improve environmental quality and resource utilisation efficiency. It sees it not only as a necessity but also as an opportunity to be seized in the race for clean energy and electric vehicles leadership, and surf the green revolution wave.

In Carmignac Emergents⁸, we focus on sub-sectors that we believe will get support from the Chinese government such as:

• Clean Energy: ENN Energy, Flat Glass Group
• Green mobility: Ehang

In order to meet the needs of an ageing population, China has been an innovator in the healthcare and medical sectors. Within the space of a few years, it has made spectacular progress in this area, justifying references to “China Care”. Next steps? To accelerate its innovation capacity with the aim of lowering medical costs and improving healthcare efficiency.

Biotechnology is developing very quickly, and Chinese pharmaceutical companies are accelerating their R&D investments. Some Chinese companies have become champions in outsourcing clinical research and medicine production. Others, such as private telemedicine platforms, have grown rapidly during the pandemic and demonstrated their effectiveness by freeing up space in public hospitals.

In Carmignac Emergents⁸, we are exposed to medical and pharmaceutical companies including:

• Vaccine: Chongqing Zhifei Biological
• Biotech: Wuxi Biologics