Building momentum
By Yang Chengzhang  ·  2024-04-01  ·   Source: NO.14 APRIL 6, 2023

Since last year, concerns about risks in the Chinese market have dampened investors' expectations. The government work report delivered by Chinese Premier Li Qiang on March 5 has set an economic growth target of around 5 percent for this year and put forward measures to ensure the target is met. These measures lay a solid foundation for the sound functioning of the capital market.

To increase domestic demand, the Chinese Government pledges to expand investment and boost consumption. While expanding the scale of government bonds, the government will encourage social investment to enhance investment in infrastructure. Investment in China's real estate sector is expected to bottom out in 2024. Overall, China will see stable growth in investment this year, with better performance than in 2023.

To scale up consumption, the government will boost consumer confidence by increasing incomes, improving social security benefits, and narrowing the urban-rural gap. It will also encourage consumption of big-ticket items including vehicles, home appliances and electronic products, and explore opportunities arising from the need to regularly replace these items as they age. The government will encourage new types of consumption, such as spending on smart home products, entertainment, tourism, sporting events and domestic brands with Chinese design elements. Niche markets in big cities and the overall consumer markets in lower-tiered cities and counties will also be further tapped into.

These policy guidelines can ensure the 5-percent growth target will be realized and also provide good fundamentals for the capital market.

The development of new quality productive forces put forward by President Xi Jinping opens up new areas for capital market investment.

New quality productive forces are key for China to shift to new growth drivers. Emerging industries including hydrogen energy, new materials, innovative drugs, biological manufacturing, commercial aerospace, and the low-altitude economy will serve as new engines for China's economic growth. At present, market capitalization of new materials, biological manufacturing, and innovative drug industries account for less than 5 percent of China's A-share market, which means there is much room for further growth. Besides hi-tech and emerging industries, new quality productive forces include application of new technologies in the upgrading of traditional industries. 

China now has 45 advanced manufacturing clusters, including 21 heavy equipment manufacturing clusters. While large-scale equipment renewal will drive the intelligent and green transformation of China's manufacturing industry, industries on the upstream and downstream of the equipment manufacturing industrial chain will grow greatly. Related listed companies are expected to perform well.

Boosting market confidence through further reform is a focus of the government's work this year. The government work report has put forward a lot of measures to improve the business environment, stimulate the vitality of market entities and pursue higher-standard opening up.

To spur the growth of the private sector, China has begun drafting a law for promoting the private economy. Private enterprises account for 35 percent of the total value of the A-share market. Over the past two years, 82 percent of newly listed companies in China were from the private sector. With improved business and legal environment, private companies are expected to play a bigger role in the capital market.

For foreign companies, China has pledged to lift all restrictions on foreign investment in the manufacturing sector, and ease market access to fields including telecommunications and medical services to encourage foreign-funded enterprises to expand investment in China. Foreign investments in China are also expected to increase.

The government work report has also pointed out that special focus needs to be placed on addressing risks in the real estate sector, local government debts, and operation of small and medium-sized financial institutions.

With the improvement of the domestic and overseas market environment and the reforms measures being taken by the government, the expectations of investors for the Chinese market will further improve this year.

The author is chief economist of Shenwan Hongyuan Securities Research Institute 

Copyedited by G.P. Wilson 

Comments to lixiaoyang@cicgamericas.com 

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