Reorienting trade

08 Jan 2019
  • Trade barriers dominate the newscycle going into 2019 but underlying changes in emerging markets point to more open trade flows in the future;
  • China is pushing a free trade agenda to open new overseas markets in Asia, Africa and the Middle East to trade and investment;
  • Chinese companies are moving their operations overseas in concert with the roll-out of the Belt & Road strategy;
  • Their investments are concentrated in areas where the middle class is set to expand by 2.9 billion people by 2030.

While trade tensions dominate the newscycle, an important shift is happening in China’s trade model that shows China’s future may not lay in sending its goods to established, developed markets but by servicing the economies of the future.

Stepping up a free-trade agenda

That is because China has stepped up its trade agenda and signed free trade deals to give its companies access to overseas markets. China has concluded 17 global free-trade agreements (FTAs), negotiated another 14, and targeted another nine deals1.

Most notably, the Regional Comprehensive Economic Partnership is in the final stages. This deal establishes a free-trade bloc of 16 Asian countries, including China, India, Singapore, Indonesia, and Vietnam, at a time when the IMF projects the region will grow 6%+ annually in 2019 and 20202.

Ramping up overseas investment
'And Chinese companies are positioning for the future, investing USD 109.5 billion in 195 overseas greenfield projects during the past ten years3. At the same time, China’s Belt and Road initiative has ramped up and put an estimated USD 382.8 billion into new ports, rail links and road infrastructure at the end of 20174.

Recent greenfield investments and projected growth inmiddle class and populations by region

Source: American Enterprise Institute, November 2018 & Financial Times, April 2015

Positioning for future global growth
And Chinese companies’ overseas investments are highly strategic and targeted in global markets that are expected to see the largest growth in population and middle class over the next 12 years.

Long-term prospects look strong
Opening up new markets, establishing overseas capacity and linking with hard infrastructure, will reorient China’s trade model for the 21st Century, and that is an important consideration at a time when trade concerns dominate newsflow and adds further weight to our conviction that finding the right companies leading these trends will give investors long-term strategic positioning as China’s growth story continues.