THIS MATERIAL IS A MARKETING COMMUNICATION.
What to Look for After China’s 20th Party Congress
The 20th National Congress of the Communist Party of China (CPC) opened in Beijing on 16 October 2022, and the week-long event closed with President
Xi’s political report to the 20th National Congress laid out the long-term vision and ideologies for the Chinese Communist Party, where development remains a top priority over the long term. We see the willingness to set long-term growth targets as a positive sign that this generation of leaders is continuing to focus on growth.
- While there were no signs of deviations from China’s zero-Covid policy, we have seen some positive signs of easing/fine-tuning to restrictions over the past month as work continues in the background on an effective domestic vaccine.
- Finally, from a sector perspective, we await more concrete policies over the coming quarters but expect most sectors to benefit from China’s increased focus on development, security, and self-sufficiency.
Economic Development Remains Top Priority for
With the number of global and domestic uncertainties this year, President
The distinction is an important one. While work reports do also include political signalling, they are more directed in their response to specific policies and objectives and are more oriented to current challenges. With this context in mind, it makes sense why current events like the property crisis and future Covid policies may not have been directly addressed. Still, the rhetoric points to a broad direction of thinking from which we can infer potential outcomes.
Closely aligned to development are implicit long-term growth targets, which appear to remain intact.
Elsewhere, security and self-sufficiency have become increasingly important but don’t override development goals. The main focus areas include food, energy, and supply chain security, while other areas, like data, infrastructure, finance, and culture, were also recognised.
Finally, in terms of ideology, investors may express concerns about the concentration of decision-making. With
Zero-Covid Slogan to Stay, Despite Gradual Easing
Given the series of upcoming political events over the next few months, we believe it is unlikely that the government will deviate from its zero-Covid slogan. Key events include the Central Economic Work Conference in December 2022 and the National People’s Congress in March 2023. As we saw during the
However, we have seen some signs of easing/fine-tuning to China’s zero-Covid approach, including:
- a quicker-than-expected reopening of Hong Kong,
- the Chinese government resuming e-visas and group tours for mainland tourists to Macau for the first time in almost three years,
- resumption of the Beijing Marathon on 6 November after being cancelled for the last two years, and
- Chinese airlines companies announced in mid-October that they will increase international flights over the next two months.
A prerequisite to China’s reopening is a more effective booster vaccination to reach critical mass against the prevailing variant. However, vaccination rates, especially booster doses, remain low across the population. As of 12 October,
However, the pipeline of new vaccinations and Covid-19 treatments does show some promise. To date, four Covid-19 vaccines have been granted market approvals in China as a primary vaccination regimen (three inactivated, one adenoviral vector), while three others have been granted emergency use approvals (two inactivated, one recombinant protein). Seven mRNA vaccine candidates are under clinical trial in China, with CSPC’s mRNA vaccine appearing to be the most promising candidate. In terms of treatment drugs, China’s National Medical Products Administration (NMPA) issued conditional approval for Pfizer’s ‘Paxlovid’ and Henan Genuine Biotech’s ‘Azvudine’ pill for certain adult patients. Brii Biosciences’ Covid-19 neutralising antibody cocktail was also approved as an antibody therapy.
Outlook and Latest Sector Updates Following the
Software and Internet
Technology and products are iterating at an unprecedented speed. With a greater emphasis on self-reliance, we expect accelerated substitution to domestic software products, starting from government, to state-owned enterprises, to other enterprises. Looking past the near-term macroeconomic challenges that hamper government and enterprises’ IT budget, we expect a rising proportion of spending on software by the whole nation to continuously digitalise and improve operational efficiency.
There was little mention of internet companies in
Battery and Clean Energy
As a matter of fact, China has become the largest market of battery and solar in terms of demand and production, with great dominance in most parts along the supply chain, such as anode, separator, polysilicon, wafer, cell,
Solar and wind demand are also growing fast despite raw materials cost hikes. Domestic solar installation is likely to exceed 70GW by the year-end, while residential and commercial D/G projects are the main sources of demand for better profitability. We expect demand from large-scale solar farm projects to pick up next year when the polysilicon shortage eases.
EV & Manufacturing
Manufacturing continues to be one of the core bread-and-butter segments in China, with the country ranking top globally in terms of manufacturing scale and based on the value of traded goods. In the latest
Continuous innovation is the key to advanced manufacturing, which has to be done by corporates. The term “Little Giants” was first introduced in 2018 and then further categorised in 2021 into small and medium-sized enterprises (SMEs) that are specialised, refined, differentiated, and innovative. As of August 2022, there are 9,119 companies in the complete “Little Giants” universe. Many of these companies were selected by Chinese authorities and appear strategically important to China in terms of its growth sustainability and national security. These corporates are offered various policy incentives, including tax incentives, fiscal stimulus, financing availability, resource allocation, and talent recruitment. We believe these forms of support are essential for innovation and will continue to sustain over the next few years.
Supply chain and national safety are also key elements mentioned in the
China’s Healthcare sector, especially the CRO and CDMO (Clinical Research Organization and Clinical Development and Manufacturing Organization) subsectors, saw a sharp correction following the US Government’s Executive Order (EO) on Biotech and Biomanufacturing. On 12 September, the US Government passed an
Days later, the US White House released more details on a specific funding budget with over US$2 billion to advance the biotech/biomanufacturing initiative to lower prices, create jobs, and strengthen supply chains. The largest funding was assigned to domestic biomanufacturing expansion with the US Department of Defense and the Department of Agriculture.
In our view, the
With a high base in 2022 for CRO/CMO companies with Covid revenues, the market is likely to get more optimistic until there is more visibility of 2023 revenue delivery, in our view. Most companies see limited impact from inflation, which they can pass down to downstream clients, and the backlog visibility remains very high. Moreover, capacity expansion remains in progress, driven by robust client demand per management.
For biotech companies, we believe re-prioritising pipelines to optimise resource allocation and commercialisation becomes the next area of focus. We have seen early signs of companies re-prioritising and have been agile in the evolving competitive landscape for their assets. For more established companies, the sales recovery post-COVID lockdowns will be the focus post-opening up.
China’s consumption has been heavily impacted by the zero-Covid policy in 2022, especially when major cities such as Shanghai experienced citywide lockdowns in April and May. Since then, we’ve seen a gradual recovery, but consumer confidence remains low under the zero-Covid policy, which became stricter in October before the
While the zero-Covid policy may be here to stay, we expect to see gradual relaxation progress to prepare for reopening in the coming quarters. We’ve already seen some progress with the government reducing restrictions in Hong Kong and Macau earlier than expected, while the Beijing Marathon will resume for the first time since the pandemic. These small changes should gradually improve consumer confidence and lead to a recovery in consumption. Discretionary and services industries should benefit the most, especially where the zero-Covid policy impacted demand and, thus, pent-up demand is high.
With the new party members confirmed, we expect the government to refocus on growth, as economic development is key to resolving many social issues. Thus, we expect to see more easing policies to boost domestic consumption over the coming quarters.
As reopening will be a gradual process, overall consumption may stay weak for the next 3-6 months, but a lot of these issues are already reflected in stock prices. Overall, we think this presents a good buying opportunity to invest in high-quality consumer companies in the coming quarters as we get more visibility on the reopening path and government support to boost domestic demand and drive economic growth.
Semiconductor and AI
Semiconductors and artificial intelligence (AI) remain key strategic focus areas in China’s tech development. The broader policy direction we gather from the
The US Department of Commerce published a new set of export controls on advanced computing and semiconductor to China. In short, the new rules mainly target to limit China’s manufacturing capabilities in advanced logic (16nm or below) and memory chips (128 layers NAND, 18nm DRAM or more advanced), as well as access to high-performance computing semiconductors from US companies.
We expect the Chinese government to introduce favourable policies to support semiconductors and AI, and more details will emerge as we head into the two sessions in March 2023. For example, the Shenzhen government recently drafted a new set of policies to provide subsidies in key sanctioned semiconductor subsectors. The subsidies range from RMB 5 million for individuals to RMB 15 million for corporate/projects.
Staying Ahead with Mirae Asset’s Latest Insights
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature/ . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: This document is intended for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.