The sustainable investor for a changing world

China Zhangjiajie grand canyon glass bridge

China outlook – Some unconventional thoughts

While there appears to be a large degree of market consensus on China’s GDP growth in 2022, there is less clarity on the three to five-year outlook. A raft of issues could slow growth momentum in 2022. They range from a high base effect from 2021, slowing export growth, further regulatory reform and the country’s ‘zero-Covid’ policy to carbon emissions control and a cooling property market. There is also a lack of ‘animal spirits’ to spur private investment due to policy uncertainty.  

This article appeared in the 2022 Investment Outlook by BNP Paribas Asset Management.

Avoiding unhelpful policy signals

Cautious tweaks to macroeconomic policy would only partly offset these headwinds. Beijing’s tolerance for slower growth appears to have grown as it accepts that this is a price that must be paid when prioritising debt reduction, cutting carbon emissions and implementing further reforms.

For 2022, management of the economy looks set to focus more on resolving structural problems and supply-side disruption, notably power shortages, surging energy prices and producer price inflation.

Given these objectives, the People’s Bank of China is highly unlikely to open the monetary floodgates as it will be keen to avoid sending out policy easing signals that could fuel inflation and derail the government’s debt reduction and ‘Go Green’ efforts.

Structural considerations in the growth debate

Conventional wisdom argues that China’s annual GDP growth would fall to 4%-5% in the next three to five years. However, the market may have overlooked the impact on the outlook of the return of industrialisation alongside structural changes.

The manufacturing sector has regained policy favour under Beijing’s new reform tactics. These favour high-value manufacturing and hard tech production over traditional manufacturing and soft tech investments. Hard tech refers to the production of hardware and components that cater for the country’s strategic and high-tech development; soft tech refers to the development of e-commerce catering for non-strategic consumption demand.

China’s domestic sector started a slow rebalancing in 2005. This involved reducing costs and improving infrastructure to drive industrialisation towards poor inland provinces. The strategy resulted in a regional division of labour. The expensive eastern region moved from manufacturing to high value-added services industries; cheaper inland regions picked up low value-added manufacturing.

However, the migration process has reversed since 2013 (see Exhibit 1) when Beijing refocused the drivers of economic growth on services and consumption. This led to a rise in the tertiary sector’s share of GDP at the expense of the secondary sector. Overall GDP growth slowed, reflecting Beijing’s policy at the time to trade off a slower GDP growth rate against higher growth quality.

Now, industrial migration to the interior provinces is likely to resume, with high-value-added industries dominating. The government’s efforts to achieve carbon neutrality by 2060 are set to open up new growth sectors and investment opportunities to replace the ‘sunset’ sectors.

Investment opportunities in new industries

China needs to upgrade its electricity grid and develop energy storage systems to improve energy supply and distribution. It also needs to wind down fossil fuel consumption by using more green electricity and achieve a structural shift from energy-intensive heavy industry to high value-added segments to boost energy efficiency.

New-sector investments are estimated to amount to RMB 5 trillion (USD 781 billion) a year – about 10% of China’s annual total fixed asset investment – over the next decade. [1]

Mobilising private capital is crucial to support investment in the ‘Go Green’ areas. Together with hard tech development, this should revive China’s GDP growth and raise the country’s medium-term productivity.

Time will tell how well these trends evolve, but they already provide useful food for thought when assessing China’s outlook and thus how investors can best position their 2022 investment strategies.

[1]  “China’s new growth driver”, HSBC Global Research). Decarbonisation can drive mainland China’s growth | Insights | HSBC 

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Related insights

Weekly investment update – The soft underbelly of hard inflation data
A fireside chat about the Hong Kong dollar as it revisits 7.85
Shanghai’s lockdown – What might it mean for global supply chains?

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2022 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2022 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.