Scottish Mortgage Investment Trust is a big fan of China but other investors torn

The 100th anniversary of the Chinese Communist Party comes with the country’s economy thought to be at a turning point, with the rebound from the Covid-19 shock seen to have reached its limits

On Friday China will celebrate 100 years since the first meeting of the Chinese Communist Party at a time when companies and investors are rethinking their approach to the country.

Undoubtedly many tribulations have dogged the country, from famines to trade wars, pandemics and the current reports about the treatment of Uighur Muslims, the party has been pivotal to China’s economic transformation and cultivating a Silicon Valley-like entrepreneurial culture that has given rise to some of the world’s biggest companies.

Just past the midway point of 2021, the country’s economy is at an expected turning point, with the rebound from the Covid-19 shock seen to have reached its limits.

But () PLC, the UK’s largest investment trust, has been growing its exposure to China grew over the past year, with four of its top 10 largest positions being Chinese companies: digital giant (), electric vehicle maker (), ecommerce platform () and local services platform Meituan, respectively.

SMIT fund manager Tom Slater recently said that “the pace of innovation at scale in China now exceeds anything we can find in the rest of the world” and he and his team “think there are still some really big opportunities in that market”.

Tencent, until recently its biggest holding, recently agreed a takeover of London-listed video games producer () for more than £900m, with Slater highlighting that Tencent, not only has made big progress in its core business but also built a portfolio of investments in “all sorts of different exciting companies around the world which has been a hugely value creative experience” and now worth close to $200bn on its own.

Another aspects of China that is exciting Slater and his team is the next wave of entrepreneurs “coming through and able to innovate at real scale”, such as ByteDance, the owners of the TikTok app that now dominates China’s online advertising landscape less than a decade after its founding, and Pinduoduo, an agriculture-focused online platform, which was founded in 2015 and has already overtaken Alibaba’s audience size in online commerce with more than 750m users.

SMT added to most of its Chinese positions through the course of the year as well as taking new holdings in these other “breakthrough companies” as they emerge.

Like many major Western governments and companies, which continue to grapple with China’s growth, influence and controversies, Dzmitry Lipski, head of fund research at Interactive Investor, said investors were also pondering whether they should “avoid, invest, or engage”.

“The Chinese Communist Party is one of the world’s most powerful institutions. The policy…

Read MoreScottish Mortgage Investment Trust is a big fan of China but other investors torn

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