April 2011: What does China’s latest National People’s Congress and its 12th Five-Year Plan (FYP) mean for investors?
The latest plan focuses on social spending and industrial upgrades as they will help shift China’s economy to a consumption-driven model which will benefit stocks in the consumer, property and infrastructure sectors.
The 12th FYP remains highly important for investors and relevant, especially due to its role in the pending 2012 political succession, because it will influence and be influenced by the incoming leadership.
The Government’s initiatives around social spending and industrial upgrades are critical because they are designed to shift China’s economy from an export-driven posture to a consumption-driven model. The sectors most likely to reap the benefits of the new domestic consumption emphasis are second- and third-tier city developers, property agencies, tourism, consumer businesses (especially for the mass market), IT services, health care, new energy, and cement, as well as adopters of Western methods, such as retailers and banks.
The objective of China’s 12th Five-Year Plan is to shift the country’s economic emphasis from exports and investment towards consumption, and from urban and coastal growth towards rural and inland development.
The priority of the Plan is to create a harmonious environment for sustainable growth by addressing more equitable wealth distribution, expanding domestic consumption and improving social safety nets. The consumption theme in China offers a huge growth potential for investors.
Many positions in the Greater China Fund portfolio stand to benefit from the rising consumerism and lifestyle changes under way in the country.
As China continues to pursue structural reform to ensure sustainable economic growth, the focus of China’s 12th Five-Year Plan is likely to center on pro-consumption policies to stimulate domestic consumption, as well as improving quality of growth versus quantity.
Important themes in the government’s policy pipeline surround industrial upgrades, with the creation of new sectors, such as alternative energy, environmentally-friendly chemicals and materials, as well as industries that focus on improving income distribution in a way that will bring harmony to society.
Social housing, infrastructure projects in energy, and industrial upgrades by moving away from the traditional low value-add reassembly manufacturing to higher value-add industries such as precision engineering, are prime examples of initiatives that are likely to dominate the government’s agenda.
Our team of China experts says there are seven key themes in the 12th FYP that are likely to define China’s growth map and influence investment decisions going forward:
- Promoting consumption growth
- Property market reform and social housing
- Health care and pensions reforms
- Urbanization and rural reforms
- Renewable energy/green economy
- Private sector/strategic industry development
- Financial and fiscal reforms.
Catherine Yeung is investment director at Fidelity International.
