China’s high-speed railway, aerospace and automobile industries are likely to benefit from the nation’s three key policy themes including “One Belt, One Road” initiative, “3 one hundred million people” urbanization plan and “China Manufacturing 2025”.
The three themes, unveiled this year, would guide the nation’s economic growth in the next decades. Investors should bear these themes in making decisions in the new year.
The central government has repeatedly mentioned the development of One Belt, One Road initiative this year. At the Asia Pacific Economic Cooperation summit in Beijing last month, President Xi Jinping said China will contribute US$40 billion to its new Silk Road Fund, which would provide financing for countries along the route to speed up infrastructure and resources development.
Meanwhile, China is stepping up the establishment of an Asian Infrastructure Investment Bank, which will involve a total investment of around 100 billion yuan (US$16.07 billion) for projects along the sea route.
The ambitious initiative looks set to benefit the infrastructure sector, railways in particular.
The One Belt, One Road plan would enable China to open up new markets and tackle the longstanding issue of overcapacity since the 2008 financial crisis.
As such, railway plays such as China Railway Group Co. (00390.HK), China Railway Construction Co. (01186.HK), CSR Corp Ltd. (01766.HK), and China CNR Corp. Ltd (06199.HK) as well as infrastructure stocks like China Communications Construction Co. (01800.HK) will benefit from the plan in the long term.
Also, the Ministry of Industry and Information Technology has unveiled a manufacturing plan for the years to 2025, which would promote digitalized, internet-linked and smart high-end manufacturing, to transform the nation into a manufacturing power in the next decade.
More specifically, the plan is expected to highlight the development of advanced numerical control (NC) machine tools, power equipment, industrial robotics, intelligent equipment and those for aviation, shipping, marine engineering and energy-saving sectors, as well as advanced rail transportation and new energy vehicles.
However, it would take a long time to hammer out the details and implement the plan. Therefore, investors should take a long-term view in placing bets on related sectors. We believe the plan would mostly benefit the high-speed railway, aviation technology and automobile sectors.
In particular, China’s two biggest train manufacturers, CSR Corp. and China CNR Corp., have manufacturing capabilities to compete with global rivals, and the potential for their merger and their export capability would make the two companies even more attractive.
In terms of aviation technology, investors should select leading companies with good fundamentals and strong earnings. China is set to put in great resources in the aviation sector, which involves national security.
Investors may look for some opportunities in automobile plays after their valuations return to an attractive level.
Urbanization is another key government strategy. In his government report, Premier Li Keqiang mentioned the “3 one hundred million people” urbanization plan. It aims to let another 100 million migrant workers settle in cities by 2020 through the reform of the hukou, or household registration system, another 100 million residents who live in shanty areas to gain access to better housing, and 100 million farmers in the central and western regions to move to cities.
Meanwhile, the National Development and Reform Commission has outlined a trial scheme for 62 Chinese cities and two provincial capitals in Anhui and Jiangsu. The plan is aimed at building a diversified, sustainable, cost-effective financing and debt management scheme through the participation of private investors.
The “3 one hundred million people” urbanization plan focuses on central and western regions, a key part of the “One Belt, One Road” plan.
Investors should pay more attention to players in the central and western areas, and themes related to urbanization sectors such healthcare, transportation and finance.
Translated by Julie Zhu.
This article appeared in the Monday edition of the Hong Kong Economic Journal.
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