PORTFOLIO
Portfolio
by

Key sectors you should watch out for as China prepares next five-year plan

Range of businesses likely to benefit from government support

PUBLISHED : Tuesday, 13 October, 2015, 8:32am
UPDATED : Tuesday, 13 October, 2015, 5:18pm

With Communist Party leaders set to gather for a four-day plenary meeting in two weeks, all eyes are on the 13th five-year plan, a strategic road map for mainland China’s economic and social development from 2016 to 2020, with guidelines for the plan expected to be announced during the meeting.

According to experts, there are several key sectors you may want to watch out for as they are likely to benefit from the plan.

Bank of America Merrill Lynch expects the central government to focus on three areas for development from 2016 to 2020: internet plus, strategic industries and the service sector.

Internet plus is a strategy pushed by Premier Li Keqiang in his government work report earlier this year that aims to integrate mobile internet, cloud computing, big data and the “internet of things” with traditional industries and boost e-commerce, industrial networks, internet banking and internet companies.

It’s more a show of the government’s determination to promote innovation
Bank of America Merrill Lynch strategists David Cui, Tracy Tian and Katherine Tai

The bank predicts strategic industries may evolve from the seven strategic industries highlighted in the 12th five-year plan. They include energy saving and environmental protection, new generation information technology, biotechnology, high-end equipment, new energy, new materials and new energy cars, and the cultural sector. “It’s more a show of the government’s determination to promote innovation in our view,” Bank of America Merrill Lynch strategists David Cui, Tracy Tian and Katherine Tai said in a recent note.

They also expect the service sector, which covers both business-related and consumption-related areas, will also be favoured, with the government likely to continue its efforts to raise service’s share of gross domestic product during the 13th five-year plan.

China Capital Corporation (CICC), the mainland’s top investment bank, highlights four sectors that may receive “strong state support” in the next five years: media and internet, pharmaceuticals, defence, and environmental protection and new energy.

In media and internet, Tencent, film and television production company Zhejiang Huace Film & TV, and financial information service platform East Money Information, are among stocks to watch, it says.

In pharmaceuticals, the most favoured stocks include generic drug maker Jiangsu Hengrui Medicine, Sino Biopharmaceutical and Sinopharm.

For the other two sectors – defence and environmental protection and new energy – CICC analysts suggest shipbuilder CSSC Offshore & Marine Engineering, solar photovoltaic inverter manufacturer Sungrow Power Supply, and wind and solar park operator Huaneng Renewables.

“As a whole, those sectors reflect China’s economic restructuring, deepening reforms, and its transition to a new growth model,” they said.

Shanghai-based Guotai Junan Securities also lists the internet as a possible key industry in the policy programme.

It also says clean energy has become an “inevitable” choice for China as it seeks to tackle its increasingly worse air pollution, predicting a spike in investment in the clean energy industry in the next five years.

Meanwhile, after the central government unveiled the “Made in China 2025” master plan earlier this year, intelligent manufacturing would be core to the upgrading of manufacturing capacity, Guotai Junan analysts said, benefitting firms that manufacture high-end machinery equipment, new energy vehicles and marine engineering equipment.

business-article-page