China’s address on global demand and the Middle Class
Li Qiang’s speech at Davos and Economic Progress in Asia …
Davos is a place we’re billionaires, politicians and or psychopaths meet once a year. Often times I ignore to listen to the wide variety of speeches held there, since it’s often just a waste of time. But this time, there have been several speeches that surprised me in particular. One of them being the great speech by Javier Milei about socialism, the destruction of the west and poverty. Milei’s speech has gone viral on social media networks, so i am sure you will find it quickly, if you haven’t listened already.
In this episode of Weekly Investing Focus, I want to cover the growing demand for goods, energy and luxury items from Asian nations. The implications are important not only for investors in China, but every investor.
1/ The 2000s in the face of massive success story
The 2000s marked the beginning of the realization, that China’s demand for commodities will outpace that of any other country in human history. The thirst for energy and goods in combination with the peak oil theory, send commodity prices to all time highs.
One of the key drivers was soaring demand from China. But the impacts were globally significant for all kinds of industries. From luxury to energy, manufacturing, etc. With the current extremely pessimistic outlook on Chinese stocks and financial markets, many people aren’t interested in China. But this is a topic that is important to everyone, since the effects will be felt by everyone. Funnily enough, the peak China theory is as popular as the peak oil theory.
My point is, that so many people stopped pricing in demand growth for commodities (by China), that this is a severe misunderstanding of reality. Li Qiang, PM of China shared his thoughts in his recent speech in Davos.
2/ The Middle Class
"In face of weak global demand, market becomes the most scarce resource. The Chinese market, with its vast space and growing depth, will play an important role in boosting aggregate global demand. In China, there are now over 400 million people in the middle-income bracket, and the number is expected to reach 800 million in the next decade or so. For a growing range of products and services, the focus of consumer demand is shifting from quantity to quality, which will generate strong driving force for upgrading consumption. There are also some 300 million rural migrants who are acquiring permanent urban residency at a faster pace. These will create massive demand in areas such as housing, education, medical services and elderly care. China is deepening its transition toward green and low-carbon growth […] This will generate investment and consumption markets with an estimated size of RMB 10 trillion yuan annually, and promises huge potential."
— Li Qiang, Davos January 16th 2024
With the middle class expected to double over the next 10 years, demand for commodities, energy, luxury goods, services, etc will continue to grow rapidly. According to Bain & Co, the Chinese luxury market will grow to around 40% of global sales by 2030. The growing demand for luxury products in Asia and the world will have massive implications for global enterprises such as LVMH or Kering.
3/ Energy Demand
Energy demand as I have stated several times, will increase massively over the coming years/decades. And fossil fuels will be a driving force, as it’s an easily accessible source of energy, that isn’t as dependent on weather conditions as solar or wind. Furthermore it is also quite cheap. Saudi Finance Minister Mohammed Al-Jadaan talked about this hypocrisy in his speech in Davos.
"This is just hypocrisy. You are here in a heated hall, but 600 million people in Africa do not have electricity. You cannot tell them to eat cake instead of bread!"
— Mohammed Al-Jadaan
4/ Conclusion
All in all, we can expect continued growth in demand for energy, commodities, goods and luxury items. Driven by Asia and especially the Chinese Middle Class, companies with a focus on these trends should flourish over the coming years. It’s important to note, that the entire EU has a population of 450m people. Slightly more then the Chinese middle class. Over the coming 10 years, the Chinese middle class will grow by an equivalent of around the entire EU ! The implications will be huge and profiteers should be luxury, commerce and energy companies.
Yours sincerely,
MODERN INVESTING
You mention the destruction of the West in Milei’s speech but not the myths of socialism. That appears to be a case of selective bias.