One of the many statistics associated with China's economic rise is the claim that it used more cement in a three-year period than the US did in the entire 20th century.
If the last statistic was about cement, the next will probably be about pensions.
Yesterday, in an interview with Larry Fink, FTfm provided the latest insight into BlackRock's plans in China. The asset manager is "very engaged" with local regulators as it tries to take control of a local investment group.
We've written in the past about the implications of more pension assets, invested in markets, in China. In 2018, the country had fewer pension assets (albeit according to a restrictive measure) than Finland, whose population is more than 200 times smaller. China's pension assets were just 1.5 per cent of GDP, compared with over 100 per cent in the UK, and 121 per cent in the US. It has by far the fastest compound annual growth rate over five years of 22 major economies compared in a recent Willis Towers Watson report.
It's important to distinguish between the provision of pensions via the state (ultimately backed by government spending) and the provision of pensions through savings invested in markets. The latter approach still involves myriad goverment subsidies and incentives, but it also creates huge opportunities for the asset management industry to, well, manage assets.
Against this backdrop, it is no surprise that global asset managers are attempting to establish a foothold in China. The government has also recently moved to liberalise rules constraining the role played by foreign fund managers. Like everything in China, the current arrangement is highly complex. But the general trend can be simplified: if you sell something, and hundreds of millions of people start buying it, that's probably good for your business. In fact, it's about as good as it gets (short of central banks printing money to buy the commodities you handle).
The opportunity extends to general Chinese savings via the asset management industry, which would be influenced by the size of private insurance markets, as well as personal savings. CICC fund management, with which BlackRock has held talks, says the following about its asset management department (AMD):
AMD serves the largest institutional investors, banks and corporations in China. Its clients include the National Social Security Fund, China Telecom, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, etc. To capitalise on the rapid growth of China’s asset management market, AMD is also exploring new market segments such as insurance companies, regional pension funds and high-net-worth individuals.
So in China, we are now witnessing the early stages of development for what may become the largest financial system on earth. This would follow the largest construction boom, and the largest urban migration.
The bigger question is the impact on the prices of assets globally. If Chinese savings flow through asset management services, they can be used to buy public assets around the world. If hundreds of millions of people who didn't buy something start buying it, what does that mean for the people who were already buying it?