28 October 2016
The government is determined to step up support for electric vehicles and build more charging stations in major cities.  Photo: Wikipedia
The government is determined to step up support for electric vehicles and build more charging stations in major cities. Photo: Wikipedia

Key investment themes for 2016 amid SOE reform

The 18th Communist Party of China Central Committee will hold its fifth plenary session on Oct. 26-29, during which it will unveil the blueprints under the 13th Five-Year Plan.

Currently, China is facing lower growth rate and going through painful economic restructuring while absorbing the impact of previous stimulus measures. The new five-year plan is critical in providing a big picture for the country in the coming years.

The new five-year blueprint will focus on four themes, namely pro-growth, reform, opening up and restructuring.

Pro-growth is a precondition for reform and economic restructuring. The reform will involve mainly state-owned enterprises (SOEs) as well as the country’s financial and taxation systems.

Opening up will center on a set of government initiatives such as the “One Belt, One Road” program, free-trade zones and economic belt.

Beijing will support new industries to restructure its economic growth model. “Internet Plus”, “Made in China 2025” and information reform in healthcare sectors will become the main themes.

Pro-growth measures will be high on the agenda when the CPC Central Committee meets next week.

Currently, China is feeling a strong pressure from the economic slowdown. As such, pro-growth is a top priority among the country’s top leaders.

That’s why the central government has stressed that China must ensure a certain growth rate or else, some issues may remain unresolved.

Investment is key to stabilize growth amid sluggish consumption and exports. In the first eight months of the year, infrastructure sector investment rose by 18.4 percent, contributing as much as 27.7 percent to overall investment, up 5.7 percentage points from the same period of last year, according to official data.

Infrastructure is the only sector that has positive investment growth, compared with manufacturing and property. Beijing is set to ramp up spending on public-private partnership (PPP) infrastructure projects.

For example, the government will continue to improve infrastructure in urban areas, such as environmental protection facilities.

Investors should focus on some underdeveloped regions as Beijing is trying to narrow the wealth gap in different parts of the country.

As such, the environmental protection sector is set to become the biggest beneficiary, as the government is determined to step up support for electric cars and build more charging stations in major cities. Subway and railway infrastructure projects will also become hot market topics.

Tibet and Northeast China stand to gain more than other regions. Tibet has very limited exposure in the market, while Northeast China enjoys great infrastructure, having been a major heavy-industry hub in the past.

Domestic A shares are very likely to stabilize in the last quarter. Beijing will maintain loose monetary policy, with room for further reduction of the reserve requirement ratio for banks.

This article appeared in the Hong Kong Economic Journal on Oct. 19.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker

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