Selling China to Indians

Will Indians get excited with the China story? Adam Matthews, JP Morgan Asset Management MD, who has come to market a China equity offshore fund here, thinks so

Published: Jul 20, 2009

Name: Adam Matthews

Title: Managing director of JP Morgan Asset Management

Age: 39

Career: He began his career with Mackenzie Financial Corporation, Toronto. He then worked with Chescor Capital, a UK private equity firm

Education: He has a B.A. (Honours) from Queen’s University, Canada and M.Sc. (Economics) from the London School of Economics

Interests: Spending time with his daughters, skiing and hiking

Isn’t China already heavily invested into? What are the opportunities?
China has spent a lot on its infrastructure but most of that investment has gone into coastal China. The country has around 150 cities with more than one million population but only a fraction of them have world-class infrastructure. China, when it comes to infrastructure, is 10 years ahead of India. Two-thirds of the Chinese stimulus package of $585 billion is focussed entirely on bringing the hinterland up to speed.

How long can China spend its way out of trouble if the US and Europe don’t recover?
China has indeed done this in the past. Every time there has been an export weakness, China has gone ahead and invested domestically. This happened during the Asian crisis of 1997, it happened during the tech bubble burst of 2001 and now it is happening in the present crisis. So, China can manage this for the next 18 months to two years. However, if the world fails to recover even in three years then China will have to rethink.

There is a belief that India, with its consumption story, is a less risky bet than China and its huge infrastructure push.
Chinese economy is 40 percent investments, 40 percent consumption, 10 percent net exports and the rest is government consumption. That’s not a very big number. Chinese domestic consumption story is huge. Retail sales are growing at 16-17 percent year-on-year. Life insurance premium collection this year is 60 percent higher than last year. What one needs to also understand is that in spite of a being a communist nation, the social infrastructure is not so great. Cost of medical is expensive. Retirement is not secured. This stimulus package will address many of those issues and drive consumption.

But aren’t Indian companies better run?
True. Indian companies are very dynamic. One needs to understand that the Chinese companies are inherited from the government while Indians are actual owners of these companies. But China has big companies. Look at banks. ICBC has a market capitalisation of $220 billion — that is around 8 times the market size of SBI. The bank has $6.5 trillion in deposits.

Don’t Chinese banks have huge non performing assets (NPAs)?
Two years ago you would be right. At that time NPAs were 16 percent of assets. Now NPAs are just 2 percent. Don’t forget that the balance sheet size of these companies is huge. For the next one to two years, Chinese banks look profitable on the back of infrastructure spending which leads to a multiplier effect.

(This story appears in the 31 July, 2009 issue of Forbes India. You can buy our tablet version from To visit our Archives, click here.)

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