Home Asset Managers Digital change accelerates China’s growth

Digital change accelerates China’s growth

China's digital change will be reflected upon the rest of the world. (Source: Freer/Shutterstock.com)
China's digital change will be reflected upon the rest of the world. (Source: Freer/Shutterstock.com)

China’s move towards an increasingly digital existence will be reflected upon the rest of the world, says Jian Shi Cortesi, portfolio manager for Chinese and Asian equity strategies at GAM Investments, in this guest commentary.

With the crucial summer season well upon us, many countries have enacted the final phase of their Covid-19 recovery plan: reopening. Nations are relaxing their lockdowns with varying degrees of success. While several American states are re-locking down, countries such as Switzerland have maintained low infection levels despite reverting to ‘business as usual’. That said, any measures taken in Europe and North America remain relatively new; their effectiveness has yet to be seen beyond the short term.

China, on the other hand, was first in to this crisis, and logically will be the first out. By looking towards the former coronavirus epicentre, we might be able to identify long-term trends that will gradually manifest themselves throughout the rest of the world.

As Europe first shut down in March, China was emerging from its month-long lockdown. This period of draconian restrictions was shorter than the lockdowns faced by other countries, partially due to China’s prior experience with pandemics. SARS and MERS were both highly pervasive in the East, consequently the government was more prepared than most to address the increasing threat of Covid-19. Unsurprisingly, a shorter lockdown has led to a faster economic recovery.

Luxury and online entertainment sectors benefit from consumer recovery

Although the downturn was short lived in comparison to the West, life is still far from normal in China. Travel restrictions remain in place and even when restrictions lift, consumers may be reluctant to travel internationally before a vaccine is developed. We therefore anticipate a significant repatriation of consumption coming back to China, especially in the luxury sector. Typically, Chinese consumers purchase their luxury products outside of the country, as tariffs tend to inflate domestic prices. The desire to purchase luxury goods remains strong, but consumers will now need to complete their purchases at home, rather than abroad.

Another sector that should benefit from the home-based consumer is online entertainment – namely, video games. Often, video games outperform during challenging economic times, as consumers seek to save money. In addition to being unable to travel, all consumers are likely to have been affected by the virus-related plunge in markets. Therefore, they may turn to cheaper forms of entertainment, in lieu of expensive cinema trips or risky family holidays.

The crucial, winning attribute of online entertainment is right there in its name – it is online. As consumers shun crowds, anything that can be accomplished via the internet becomes the natural preference. This shift to online is a trend that existed prior to the pandemic; however, the rapid onset of the lockdowns and the long-term nature of social distancing have accelerated it, resulting in a digital infrastructure that is likely here to stay. Early adaptors of this trend are the Chinese healthcare and education sectors, which were forced to embrace technology due to their essential presence in consumers’ lives.

Digitisation as a long-term driver for the health and education sectors

Over the past few years, China’s healthcare system has attempted to evolve past the culturally-engrained response of going directly to a hospital when sick. Often, patients would wait hours to be seen for a mere 10 minutes and online services were nearly nonexistent. The government has encouraged the spread of online family doctor services, which, for a fee, can provide access to an online doctor 24/7. Pharmacies can then deliver medication within a matter of hours. Even when coronavirus wanes, at-home healthcare can only help with alleviating hospital overcrowding and boosting overall sector efficiency.

Culture also plays a role in the evolution of the education sector. In China, education is a potentially life-changing tool, which the impoverished can use to rise through the social ranks. With many schools remaining closed, online education has become a necessity and consumers have embraced it as a mechanism that can allow school to remain in their lives. Backed by large education companies, various mechanisms have been put in place to ensure the effectiveness of virtual teaching. Pop quizzes appear during online classes, allowing the grading process to happen almost instantaneously. Data is then produced to measure student attentiveness and comprehension. These are benefits that parents, in particular, will rely on and likely desire even when all lockdown restrictions are lifted.

We believe China’s move towards an increasingly digital existence will be reflected upon the rest of the world. Online entertainment, online education, online healthcare – each sector embodies pre-existing trends that the crisis has accelerated. As the global recovery continues to take shape, China will serve as a bellwether for the trends that will become cultural mainstays in the long term.


Jian Shi Cortesi

Portfolio Manager
GAM Investments

Jian Shi Cortesi is an Investment Director of Asian equities and among others responsible for the GAM China Evolution Fund. Prior to joining GAM Group in May 2010, she worked in research and portfolio management of Asian equities for a regional wealth management firm in the United States. She started her career as an assistant editor at Dow Jones in Beijing. Jian Shi Cortesi holds a Bachelor degree in International Business from Beijing Foreign Studies University in China and an MBA from the University of Tennessee in the United States. She is a CFA Charterholder and a Certified FRM (Financial Risk Manager) holder.