As I write these words, images of Hong Kong riot police clashing with demonstrators dominate the headlines.
It’s typical for controversy to accompany news about China. While there are many things to dislike about the country, a smart investor should not ignore it.
With 1.4 billion people and a rapidly growing middle class, China is the largest country in the world by population. It is currently the second-largest economy worldwide, growing at an annual rate of 7%. However, an HSBC study predicts it will surpass the U.S. economy by 2030. The same report shows the Chinese as the single biggest contributor to global growth over the next decade.
The projections make sense.
The U.S. economy is growing at just 2.5% per year. An aging population, a declining birth rate, and other factors are all contributing to minimal U.S. population growth. Factor in the heavy debt load carried by the average U.S. household and it’s easy to see that North American’s demand for consumer goods and services will be modest in the future.
If you’re looking for growth in your investment portfolio, China and other south Asian countries are where to find it.
Claudia and I visited China in late June to learn first-hand about the history and culture of this emerging powerhouse. When we arrived in the big cities, it was obvious they’re thriving. We know a Communist regime strictly controls the country—surveillance cameras are on every corner—yet in many ways the atmosphere feels like a capitalist model.
Just two decades ago, Shanghai, one of the largest cities in the world, had little infrastructure. Today, it is one of the most technologically advanced cities in the world with an efficient transportation system.
How efficient? We arrived on a Friday afternoon at 4:30; a bus quickly whisked us to our hotel 40 km away in less than an hour. You couldn’t do that in Toronto during rush hour, yet Shanghai’s population of 28 million is 8 times that of the GTA.
On our tour of Shanghai, we saw Starbucks, Burger King, KFC—and even a Tim Hortons store in the city. KFC is the most popular fast food chain in China with 5,000 restaurants in 1,100 cities. The restaurant owes its success to its ability to adapt its menu to local tastes. While KFC serves chicken in China, you’ll find unfamiliar dishes on the menu including breakfast noodles, egg tarts, congee, soy sauce wings, and a chicken-and-seaweed rice bowl.
Tim Hortons opened its first restaurant in China in Shanghai last February. It plans to open another 1,500 over the next decade. The chain’s parent, Restaurant Brands International, understands there will be minimal growth from its 4,300 Canadian locations. Like other consumer goods companies, it’s investing in the huge potential of the Asian market.
Expanding Middle Class is Driving Growth
If you’re looking for growth in your investment portfolio, it’s hard to find in companies focused solely on the North American market. While you may not agree with China’s politics, there’s no denying the country’s middle class is driving incredible opportunities for the savvy investor.