លើសពីវិបត្តិ Evergrande៖ ហេតុអ្វីបានជាចិននៅតែមានការទាក់ទាញវិនិយោគយ៉ាងខ្លាំង

Away from the Evergrande debt crisis and the real estate sector, there are still opportunities in the industries Beijing wants to see expanded

Notably, China’s recent tech crackdown didn’t extend to industries it is championing, like semiconductors

Investors should not shun China even if there is unease about the way the Evergrande debt crisis will ultimately play out. There is still good money to be made but the best opportunities will be in sectors of the Chinese economy that Beijing has a clear interest in developing.

Nor should investors view China through a Western prism. For example, while it may be tempting to draw parallels between the systemic complications that could arise from Evergrande’s situation and the seizure that the global financial system suffered after Lehman’s collapse, the temptation should be resisted.

Evergrande might have large liabilities but its fall from grace shouldn’t pose a material threat to China’s banking system.

Additionally, Lehman didn’t collapse because the US government took policy measures that rendered its business model unsustainable. It was the market perception that Lehman had become an untenable business that drove the US investment bank to the brink. US policymakers then administered the coup de grace by allowing Lehman to go bust in the mistaken belief that the ensuing damage would be containable.

In Evergrande’s case, Beijing has already formulated “three red lines”, measures designed to rein in business practices in the real estate sector which Chinese policymakers had concluded were unsustainable and sought to address in a managed fashion.

Once Beijing acted on what it saw as unsustainable debt levels in the Chinese real estate market, there had to be consequences. Beijing would have expected that and, it is to be hoped, calculated that if defusing the problem was to lead to an explosion, then, unlike in the case of Lehman, it would at least be a controlled blast.

At any rate, however Evergrande’s problems are eventually resolved, markets should now understand that the levels of leverage in the real estate sector that Beijing once tolerated are a thing of the past. That in itself may help explain recent price moves in other markets.

To the extent that Beijing’s moves will mean a slower pace of construction in future, it helps explain why, in recent months, with markets becoming more attuned to the implications of the three red lines for China’s real estate sector, both the iron ore price and indeed the share prices of major Australian miners have come under pressure.

But if the real estate sector in China is going to expand at a more measured pace for the next few years, there will still be investment opportunities in other sectors of the economy that Beijing wants to see expanded.

A glance at China’s 14th five-year plan, unveiled back in March, is instructive, with its characterisation of innovation and technology as the primary drivers of productivity in the coming years.

“As far as regulatory risks are concerned, the hard tech space is almost like a safe haven for investors,” Fred Hu, founder, chairman and CEO of Primavera Capital Group, a China-based investment firm focused on innovative industries, told the Goldman Sachs Global International Research newsletter this month.

He added: “Recent regulations have significantly impacted the consumer internet sector – including fintech, e-commerce, social media, gaming, delivery, ride hailing and education tech – while the hard tech space, notably semiconductors, industrials, AI, robotics, medical tech and clean tech, has been completely spared from the recent tech crackdown.”

These are the areas investors might choose to explore, especially in an environment where strategic competition between China and the United States will necessarily prompt Beijing to encourage development of the sectors where the Chinese economy still relies on imported components.

Infrastructure is another sector that Beijing is targeting and which may prove attractive to overseas investors.

Indeed, just last week, China announced that over the next five years it would be boosting investment in infrastructure, with specific reference to telecommunication networks, satellite navigation, the industrial internet and smart logistics, as well as transport.

The implications of such an investment strategy might not come easily to Western investors, who are more used to evaluating business opportunities from the perspective of a free market, largely without governmental interference, but this is China, and Beijing sets the ground rules.

And in an era where Beijing is increasingly strengthening its regulatory footprint and setting out clear economic objectives, the best investment opportunities will be in the sectors that China’s policymakers are championing.

Going with the flow will be a better option than swimming against the tide. Beijing has taken action to address perceived excesses in the real estate sector and that will mean losses for many investors. But that doesn’t mean investors should shun China. There is still good money to be made.

Neal Kimberley is a commentator on macroeconomics and financial markets

SCMP