Speaker 0:
Joining me Now at the Bait Winter Conference. Ben Butler, client service director at Bailey Gifford. Welcome, Ben. Thank you So, Ben, A pleasure to be hosting you. You've just gotten off stage from your breakaway session, focusing on China friend or

Speaker 1:
very difficult question for many people to have to to discuss at the moment.

Speaker 1:
But I think certainly for us, as bottom up fund managers focus simply on the best companies out there. You know, China has quite a lot of opportunities that can get missed when people tend to make big, broad generalisations about China and tend not to look at the opportunity side of things and tend to focus on the risk side of things. And that's really what I was just trying to engage the audience on, to see if we can help with our thinking.

Speaker 0:
Absolutely so. Previously, China has been viewed as quite a regulatory, risky country.

Speaker 0:
Why is this so?

Speaker 1:
I think the nature of the Chinese governance system means that that regulatory problem is going to exist there now. Regulation isn't new. It's not something that we necessarily need to panic about, but certainly in the last two years it has been critical because we've seen in the education space and we've seen in the Internet space that it can be very, very damaging to share prices

Speaker 1:
and the level of trust in China's system when it comes to that because of what's going on with the regulatory side. So we tend to think that it's not necessarily as much of a concern as the market would expect it to be. It is just fundamentally that shift between innovation and regulation that happens over time.

Speaker 1:
And China has had to regulate pretty hard because its companies have developed far faster than many others, particularly in areas, data, digitization, e commerce and things like that. OK, and

Speaker 0:
I think that EV or electric vehicles is another

Speaker 0:
theme that seems to be presenting the opportunities for tomorrow. Perhaps you can take us through some of the statistics surrounding the themes that are shaping the fourth Industrial Revolution

Speaker 1:
definitely well, actually, in contrast to the areas of regulation that have been negative to the market. Actually, the green energy space is something where top down policy has really benefited China.

Speaker 1:
So, you know, the market often focuses on things like cement, coal, carbon usage, But the opposite side of the coin is China is delivering now in a host of areas, So six of the top 10 e v battery manufacturers are Chinese.

Speaker 1:
China delivers more than 70 per cent or manufactures more than 70 per cent of the world's solar wafers, and China is responsible for about two thirds of all wind power generation. So in that space, China is clearly critical to solving some of the world's big problems and that can get overlooked when you're just focused on the other side of the coin. Absolutely

Speaker 0:
so the demographics in China are depicted with quite a large middle class. What

Speaker 0:
kind of investment opportunities does the significant middle class population present?

Speaker 1:
Certainly, the growth of the middle class has been a phenomenal driver of China's development over the last 2030 years. But we shouldn't forget there's still another 4 500 million people that haven't made that transition.

Speaker 1:
But one of those structural trends that we like quite a lot is really looking at Generation Z coming through and a cohort of almost 300 million

Speaker 1:
younger consumers who think very differently to their parents. They've only ever known China on the front foot economically, politically, and therefore they tend to like things like national brands as against international brands. And if we're thinking over 10 years, it's really that cohort that are going to drive that domestic demand story, and that's what gets us excited.

Speaker 0:
Absolutely so. China has also seen

Speaker 0:
the lowest interest rates that it has seen in a long while, where the rest of the world is seeing the highest interest rates that they've been seeing in a long while. Why is there a negative correlation between what's going on in the rest of the world versus China?

Speaker 1:
I mean, predominantly Right now the difference is the, uh the method through which they've come through covid.

Speaker 1:
And so for a couple of years we were all worried that the rest of the world had the problem and China was recovering quite nicely. And actually, that went into reverse last year, where significant lockdowns caused the economy to have problems. So really, China's following, perhaps the experience of other countries, but just two or three years behind. But that means that this year we're now starting to get ready for that consumption recovery that the rest of the world has seen for the last 18 months. Two years

Speaker 1:
and again, you know, if you're trying to look for positives of China, that economic recovery is coming at a time at which the rest of the world is more challenged with cost of living crisis, high interest rates and things like that.

Speaker 0:
So then our local listed market gains exposure to the innovation within China primarily through Napa, which has quite a significant allocation, as well as process to 10 cents. What innovation is driving the growth in 10 cents?

Speaker 1:
Certainly, at Tencent, it has been a phenomenal winner over over at least a decade, based on the way it is dealing with China's digital elements and whether that's through wechat, which is effectively like WhatsApp but sort of on steroids. You know, it's thinking far better at how you integrate the consumers into that space. It's then gone into payments, financial technology as well as the investments it's made around the rest of the world and within China. So

Speaker 1:
Tencent has really been a leader in that digital data space and continues to be so, albeit increasingly. Now. Competition is coming from bike dance in the e commerce space you've got pin door PDD Group, which is coming up me, is coming up as a service provider. So you would have to say that China is continuing to bring these innovative kind of companies that is leading to quite a lot of competition. But obviously some of these big companies are well positioned to try and weather that. Absolutely

Speaker 0:
so then,

Speaker 0:
if South Africa adopts some of these new innovations that are being born in China, So for example, um, automation, industrial automation, what impact do you think that will have on the on the social aspects of of of South Africa and the demographics in South Africa?

Speaker 1:
That's a big question. I might not have the answer. I mean, the real challenge with some of the speed through which you innovate is that balance between turning factories into being fully automated. Now that can be quite good for the economy in terms of productivity gains, which is something that China certainly needs, but obviously then have the employment challenges as to what happens to the people that are working in factories. So

Speaker 1:
that's why certainly, in China, education is really quite important and, you know, from XI Jinping and the top down. That's an area that they're really quite focused in, making sure that people have the skills to be in the industries of the future.

Speaker 0:
So the deputy president this morning made quite a significant announcement with regards to South Africa's trade relations with China

Speaker 0:
or the BRICS country. Should we say so? How do you believe that improved trade relations with China and the Far East would facilitate better cross border investment opportunities? It

Speaker 1:
certainly sounded like quite an important announcement this morning here at the conference and I think

Speaker 1:
looking at it from a Chinese angle, China is developing a lot of goods, a lot of services that it is going to continue to export around the world with perhaps tensions in certain areas. The likely destination for a lot of those goods and services is going to be the global South and we could look to South East Asia. We could look to Africa and South Africa, particularly in terms of taking up some of that, and I think it's probably quite an important announcement for South Africa that they will continue that dialogue with China around trade any closing

Speaker 0:
around

Speaker 0:
Spain with regards to what you're taking away for Bailey Gifford from the Bets Windsor Conference this year.

Speaker 1:
I mean, it's clearly a phenomenally well, well put on conference, and it's great to be here. It's interesting just to have those dynamics of an audience quite interested in that China discussion, because how you balance risk and opportunities is a critical question for pension funds globally. And that's going to be exactly the same here. Ben,

Speaker 0:
thank you very much for sharing your insights on the growth in China. Thank you. Appreciate your time,

Speaker 0:
the

Speaker 0:
mhm.