China, the second-largest economy in the world, contributed 28 per cent of all global growth in the five years to 2018, more than double the contribution of the US.

It’s a trend that’s likely to continue, according to Roderick Snell, joint manager of Baillie Gifford China Growth Trust. “As the world’s most populous country, with the most middle-class consumers, it has a captive market of over 1.4bn people. But it’s China’s willingness to adopt new technology that sets it apart,” he says.

China has leapfrogged the west in innovation, he believes. “Nothing stands still in China. Although a communist country, the private sector is one of the most capitalist I’ve experienced,” he says. “Competition is ferocious, particularly among technology firms. Tapping into customers’ hunger for the new, they’ve become some of the most innovative companies in the world.”

Formerly Witan Pacific Investment Trust, a pan-Asian trust, Baillie Gifford China Growth Trust is now exclusively focused on China. But Baillie Gifford has been investing in Chinese companies for over 25 years and last year opened a research office in Shanghai.

Sophie Earnshaw, Snell’s co-manager on both the trust and Baillie Gifford’s China Fund (launched in 2008), says you get a feel for the growth possibilities when off the beaten track. “I’ve visited cities in remote Western China I’d never heard of, with populations of over three million. They’re like Shanghai 10 years ago – less developed, with poorer infrastructure and largely offline – but only going in one direction, especially given huge of sums investment from the Chinese government.”

In the growth greenhouse: Three stocks to watch

Li-Ning
One area gaining traction is Chinese brands. “Older generations associate home-grown brands with poorer quality, but millennials and Generation Z are proud to purchase Chinese goods”, Snell says.

A favourite of the China Growth Trust Team is the sports apparel brand Li-Ning, established in 1990 by the winner of three Olympic gold medals for gymnastics at the 1984 Los Angeles games.  

Li-Ning’s share of the Chinese market is about 5 per cent, but it is poised to vault further up the leader board and challenge Nike and Adidas.

Burning Rock
Recently listed healthcare company Burning Rock could lead its field, according to Earnshaw. Its liquid biopsy blood tests help determine the best treatment for many cancers. In China, it has first mover advantage, strengthened by steady acquisition of patient data.

“Burning Rock uses this data to inform subsequent improvements to treatment, becoming more accurate and sought after,” Earnshaw notes.

Another application of the biopsy technology excites her even more. “Early stage cancer detection is a nascent industry. Burning Rock’s data is as compelling as its western equivalents,” she says. “Any firm that is successful here has a global growth opportunity.”

CATL
A greener future is not solely a western goal, with the Chinese government targeting 25 per cent of all new car sales to be electric by 2025.

The country’s leading battery maker, CATL, controls almost half of the Chinese market. “Since CATL has such dominance, its costs are lower than anyone else’s. This is a fantastic competitive advantage and means whenever subsidies for the battery industry are removed, CATL is likely to grow stronger,” Snell says.

“We like CATL’s ability to expand outside China too. It already supplies BMW and Tesla, which makes it a company to reckon with on the global stage.”