China previously “sailed on” economically while other countries struggled, but the world’s second largest economy may have a difficult road ahead, according to a strategist.
“China has reached the level of development where many emerging markets typically find it tougher,” said Mark Jolley of CCB International Securities.
He pointed to the trend of deglobalisation, friction between the US and China as well as the weak global economy.
“On both sides of the Pacific, we hear a lot of wishful thinking that decoupling will promote rather than hurt domestic growth. We disagree,” Ethan Harris wrote in a BofA Global Research note published Friday.
“Decoupling is a negative sum game that hurts both countries. It means abandoning comparative advantage and stranding capital,” the global economist at Bank of America Securities added, although he acknowledged there could be “strong geopolitical and credible reasons” for decoupling .
Domestically, Beijing must also manage its troubled real estate sector, Jolley told CNBC’s “Squawk Box Asia” on Monday.
“I certainly think the economic outlook for China over the next five to 10 years is deeply challenging,” he said.
“In the past, China has sailed on while everyone else has struggled. Now China is likely to become more like other countries,” he added.
BofA’s Harris said “adverse demographics” and the limits of an export- or construction-driven economy are challenges for Beijing.
“Beyond the near-term pick-up in growth, we see ongoing downward pressure on potential or trend growth in China,” he said, pointing to a return to “more of a command economy” and concerns that it is dampening foreign investment flows.
That said, Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said 2023 will be a “pretty good year” for China, as the economy is expected to lift strict Covid measures and decline in domestic consumption.
“Compared to the rest of the world [where the] consumer is going to struggle over the next 12 months, China is going to be the shining spot,” she told CNBC’s “Squawk Box Asia.”
The sell-off in Chinese tech stocks presents a “tremendous” opportunity, she said, although she cautioned that investors need to be aware of changes in income redistribution policies.
“You just have to be very selective in what you choose – focus on businesses and sectors that [are] not so much policy-driven, because that’s probably where most of the risk lies,” she said.
— CNBC’s Evelyn Cheng contributed to this report.