China doesn’t need the rest of the world to open for it to prosper this year, according to Matthews Asia’s Andrew Mattock, with more than enough domestic demand to continue growing.
As the epicentre of the pandemic, China was the first major economy to go into lockdown emerging from it in the past few weeks.
However, while the Chinese economy is starting to open for business, consumers in the West remain locked down and many facing a reduced income as a result.
China has been seen for many years as the ‘factory of the world’ and a major exporter of goods, a difficult position to be in given the fragile state of economies elsewhere.
Yet, Mattock – manager of the $67.9m Matthews Asia China fund – said that argument doesn’t really stand up.
“China got on top of the virus, they contained it and have opened their economy up very quickly,” Mattock said, adding that they had had the ‘best’ lockdown.
“China like the rest of the global economy is going to be affected – [but] it’s running a lot on its own engines now, so it can start getting back to normal without relying on exports to the rest of the world because its domestic market is very big in its own right.”
This isn’t to say that China will come through the coronavirus crisis unscathed or not feel the impact of any impending global recession. As the Matthews Asia manager explained, Q1 is seasonally China’s weakest quarter for corporate earnings and growth he still expects a hit of 5-10 per cent on corporate earnings in 2020.
“It’s definitely going to knock growth,” Mattock said, “but it’s not going to knock it nearly as much as you would’ve expected in the past. There are just so many people in China now looking to consume still, that part of their economy will dent the fallout.” 
Looking at the areas of opportunity in China’s domestic market Mattock (pictured) said that the growth-focused Matthews Asia China fund has focused on three major themes in the wake of the crisis: domestic tourism, online shopping and online education.
With many of the world’s airports likely to remain shut for some time, domestic travel could become more popular as Chinese workers emerge from lockdown.
Mattock said: “Even if everything opens up, people are going to stay home this summer and look for domestic places to go travelling.”
Furthermore, the rising demand for online shopping and education services has also become more pronounced during the Covid-19 lockdown.
Both of these themes have been emerging in China for some time Mattock said, but there is still a huge amount of growth, particularly regarding online shopping.
“In China, it’s still a penetration game with online shopping,” Mattock said. “You go out to lower tier cities and there’s still a lot of people who aren’t online shopping in those areas.
“This whole virus situation has just accelerated what was already in play. In China’s case it’s even more aggressive than the rest of the world as it’s so under-penetrated.”
Mattock said he had increased his cash holdings since the start of the Covid-19 crisis – at the end of last year, rather than Q1 when it started becoming a problem for the rest of the world – something he doesn’t typically like to do but was necessary given the severity of the situation.
Looking at the expected timeline of the coronavirus, the Matthews Asia manager said he expects some normality and calmness to have resumed in markets by mid-June given the amount of energy and resource being invested in finding a solution.
Nevertheless, the impact of Covid-19 on China should not detract from the long-term China growth story, said Mattock. If anything, argued the manager, it has reconfirmed it.
“I hope that it’s crystallising in people’s minds that China is actually a place that you should be considering in its own self,” he concluded, highlighting the low level of direct exposure to China in many investors’ portfolios.
“You can’t get away from it globally as an economy,” Mattock added. “People talk about China a lot but no one is actually invested there.
“So [maybe] people might start thinking that it’s a good idea to put something there because it is a bit of a diversifier [given] it’s such a large domestic market.”
Performance of fund vs benchmark & sector over 5yrs
Source: FE Analytics
Managed by both Mattock and Winnie Chwang, the four FE fundinfo Crown-rated Matthews Asia China fund has made top-quartile returns over the past five years of 52.33 per cent, outperforming the IA China/Greater China peer group which made 35.99 per cent and the MSCI China benchmark’s 24.68 per cent gain. It has an ongoing charges figure (OCF) of 1.24 per cent.