For example, Chinese electric vehicle (EV) manufacturers like BYD, SAIC Motor and NIO, among others, have surged to prominence through significant capacity ramp-ups, cost reductions and the launch of increasingly attractive models, with EV penetration levels reaching up to 67.9 per cent in Shenzhen in 2023, nearly double the national average of 35.7 per cent.
According to the Australian Strategic Policy Institute’s critical technology tracker, China is ahead in 37 out of 44 key technologies. China’s dominance of the solar supply chain is already well known, but its rising supremacy in EV manufacturing is becoming increasingly clear.
This trend is underscored by the Western world’s erection of a tariff wall to shelter its auto industries, reflecting its defensive stance against China’s industrial and technological ascendancy. Today’s proclivity for protective measures signifies a reversal of fortunes in the global technological race.
The resilience and ambition of the Chinese economy
Despite prevailing pessimism, segments of the Chinese economy are thriving. Challenges in areas like the property market are by no means insignificant, but other parts of the economy are motoring.
These flourishing industries embody President Xi Jinping’s vision of transforming China into an industrial and technological powerhouse, leading the world in key technologies, with strong state support behind it (think Germany on steroids), ultimately ensuring both China’s strength and security.
EV manufacturers’ success stories, encapsulated in slogans like BYD’s “Build Your Dreams”, epitomise the ambitious journey towards this vision.
Navigating Chinese equities – a balanced view
Of course, the remarkable rise of Chinese enterprises like BYD and other EV manufacturers should not lead to an uncritical embrace of all Chinese equities. Rigorous fundamental analysis remains crucial, particularly as many will fall foul of our stringent governance lens, given the prioritisation of national interests over shareholder returns.
Nonetheless, the landscape is ripe with promising opportunities for discerning investors willing to explore the dynamism of China’s market. Further, it feels timely for us to remind ourselves of the “positive” case for owning China, rather than just the case for not owning it, even if that has – rightly – been the swing factor more recently.
Looking ahead – the global implications
The EV evolution is not just about a changing guard in automotive leadership but also signifies a wider technological and economic shift that is shaping our world. A shift that, by investing in emerging markets, one stands to benefit from.
Douglas Turnbull, research analyst, and Daniel Grana, portfolio manager, Janus Henderson Investors
