How to Invest in China Responsibly

"China has made big inroads on a number of sustainable issues, including state ownership, shareholder friendliness, control structures, disclosure and environmental stewardship."Kathlyn Collins - Head of ESG

There are strong long-term reasons for investors to allocate to China, be it for asset or theme exposure, diversification needs, or alpha generation. For many investors, however, the bigger issue is whether having exposure to China can be done in keeping with a commitment to being a responsible steward of capital. There’s perhaps no other market where Environmental, Social and Governance (ESG) issues, not to mention geo-political concerns, are more top of mind. In this roundtable discussion, Matthews Asia Chief Investment Officer Robert Horrocks, PhD, Head of ESG Kathlyn Collins and Portfolio Manager Andrew Mattock explain how investors can align their investment principles with the opportunities that China has to offer.

The China Dilemma

By Robert Horrocks, PhD - Chief Investment Officer

The first thing to bear in mind is that China’s evolution into a major industrial and economic power has played out over decades rather than the centuries it has taken for Europe and the U.S. to establish themselves as global leaders. That means China is still busy addressing pollution, workers’ rights, shareholder transparency, and all the other things intrinsically tied to the expansion of a modern industrialized economy. The good news is that China is making a lot of progress on these issues.

Secondly, the Chinese culture is built on the values of the community and not the individual. It’s different to the West. There’s no way you can really get around that. But I would argue there’s no need to. In fact, it can work in the interests of sustainable investors. If you’re interested in investing in companies that promote diversity, facilitate access to health care, housing and education, and make the environment cleaner, then you’ve come to the right place. These are areas the Chinese government is focused on and encouraging growth in.

China and the environment

China has some significant climate-related commitments. Among them, it’s pledged to be carbon neutral by 2060 and for its CO2 emissions to peak before 2030. It has a target for 40% of new vehicle sales to be New Energy Vehicles (NEV) by 2030 and in solar and wind China has pledged to have 1,200 gigawatts (GW) installed capacity by 2030. To put the latter in perspective, by the end of 2021 global renewable generation capacity amounted to 3,064 GW.