23 October 2016
Even though the two-child policy will change the structure of the population, the change will be limited and will take decades. Photo: CNSA
Even though the two-child policy will change the structure of the population, the change will be limited and will take decades. Photo: CNSA

Hints from China’s 13th five-year plan

China is targeting an economic growth rate of about 6.5 percent in its 13th five-year plan.

But, considering that domestic credit is in a downward cycle and that the economy is transforming to a service-driven one from one dominated by manufacturing and from one that is investment-led to consumption-led, it will be hard for the country to achieve that goal.

Not to mention the unfavorable global economy.

Facing challenges externally and internally, China has launched substantial reform policies.

Actually, the concepts in the plan — like Internet Plus, Made in China 2025, One Belt, One Road, reform of state-owned enterprises, resolving the issue of poverty, enhancing the public healthcare system, and environmental protection — were all mentioned by President Xi Jinping or Premier Li Keqiang in speeches in 2013.

We think the 13th five-year plan will have limited substantial influence on the market in short term.

We are still waiting for the meeting of the National People’s Congress, to be held in March, for more details of the plan to emerge and for it to be passed.

The two-child policy is expected to optimize China’s population structure.

China has a low birth rate compared with other countries.

Figures for 2014 show each Chinese woman has, on average, 1.6 children.

Whether married couples will have a second child depends to some extent on how much support the government provides in baby care and education.

These considerations are similar to those faced by families in developed countries.

So, the two-child policy will have a positive influence on healthcare- and baby care-related sectors in the following years.

However, its effects will depend on the social and economic situations then.

And even though the structure of the population will change, the change will be limited and will take decades.

We think that, in the short run, the manufacturing sector will encounter heavy cyclical resistance.

But if the economy grows steadily, the service industry and the consumer sector will see healthy growth.

The residential property market is stabilizing. This may lead to a recovery of construction industry in the second half of next year.

Beijing has been consistent about its mid- and long-term economic targets and policy priorities in the past three years, including those in the service and consumer industries, environmental protection, One Belt, One Road initiatives, and opening up of the financial system.

We believe long-term investment in these areas will bring good returns for investors.

This article appeared in the Hong Kong Economic Journal on Nov. 23.

Translation by Myssie You

[Chinese version中文版]

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Chief Asia Market Strategist at JP Morgan Funds

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