Investment implications of China’s 2023 Government Work Report

China’s 2023 Government Work Report was unveiled at the annual Two Sessions meetings in early March. The report sets out the government’s targets and policies for the year with the aim of boosting growth and furthering the country’s economic development. In this piece we outline the major policy updates in the report and the investment implications these may have on Asia and China equities, fixed income and real estate.

The report set out several major priorities that the government has for the coming 12 months. These include:

• Expansion of domestic demand – Prioritizing the recovery and expansion of consumption by boosting urban and rural income. This involves stabilizing spending on big-ticket items such as automobiles and promoting the recovery of consumption in consumer services in sectors such as catering, culture, tourism, and sports.
• Modernizing the industrial system – Focusing on scientific and technological innovation in supporting industrial development by accelerating R&D, supporting the exploration and development of key energy sources and minerals, digitalizing traditional industries and small and medium enterprises (SMEs), and strengthening industrial supply chains (specifically in the manufacturing sector). 
• Consolidating public sector development and encouraging private sector development – Deepening reform of state-owned enterprise (SOE) capital and SOEs to improve their competitiveness. Supporting the growth of private companies, specifically in the areas of property rights and the rights of entrepreneurs and self-employed individuals. 
• Prioritizing attracting foreign investment – Expansion of market access and opening up of the service sector to foreign companies. Taking steps to ensure China joins the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and other economic and trade agreements, by proactively adopting relevant rules, regulations, management, and standards. Continuing to leverage the role of imports and exports in driving economic growth. 
• Preventing and defusing major economic and financial risks – Deepening reform of the financial system, improving financial regulation and guarding against regional and systemic financial risks specifically with regards to the real estate sector and local government debt. 
• Continuing the transition to green development – Emphasis on pollution prevention and control, improving river basins, upgrading urban-rural environmental infrastructure, and continuing to implement major projects for protecting and restoring key ecosystems. Promoting R&D for the clean and efficient use of energy and increasing the share of renewable energy in China’s energy mix.

Our investment teams outline the potential investment implications of these priorities for their asset classes:

Asia and China equities (By Mike Shiao, Chief Investment Officer, Asia ex Japan)

The key messages from the Two Sessions serve to reassure investors that the country is still growth-driven while systemic risks are being controlled. We expect that this will set a positive tone for valuation rerating as well as earnings recovery. From the reopening angle, we see that while the recovery pace is not linear, the trend is pretty clear. Offline related consumption scenarios will take the lead in recovery. As we witness the restoration of households’ balance sheets and consumer confidence, we believe the recovery will spill over to more sectors. 

We also notice the government is focusing more on quality growth at the moment. This includes their efforts in deepening SOE reform, modernizing the industrial system, transitioning into green development, as well as implementing moderate stimulus policies year to date after the conclusion of the Two Sessions. We expect these initiatives can help China to achieve sustainable growth given the demographic issues the country faces. Considering valuation, we tend to be selective on high-end manufacturing industries and green economy-related names.

Overall, we’re positive on the China market this year.

Asia Fixed Income (By Freddy Wong, Head of Asia Pacific, Fixed Income) 

“Stability” is one of the key messages from this year’s Government Work Report. It is also reflected via the relatively modest GDP growth target for 2023. The government is likely to take a wait-and-see approach to let the economy run for itself and adjust “monetary and fiscal policy coordination” if needed. We see range trading of China onshore rates in the near future, with room for downward yield moves in the medium term. 

We believe the trend of increasing green bond and loan issuances from Chinese companies will continue both onshore and offshore on the back of China’s strong commitment to green development. 

In the US dollar space, improving domestic consumption is positive for China credit in general. We may see continuous supportive policies for the real estate sector and local government financing vehicles to safeguard against systemic financial risks, but we view rigorous credit selection as critical to minimizing volatility. 

Due to attractive relative value and lack of good quality assets onshore, we are likely to see more demand for Asian US dollar credit.

China Real Estate (By Thomas Au, Managing Director, Asia Pacific Real Estate Investment Strategist)

The above measures are undoubtedly supportive of the real estate market. Not only can boosting income improve individuals’ confidence in the housing market but we believe promoting consumption will also be supportive of retail and logistics demand. In addition, measures to modernize industrial sectors, advance tech development, as well as support private sector development, are likely to drive corporate demand for different commercial property types. That being said, the market may still need some time to fully recover from the prevailing weak conditions, as demonstrated by the continued slowdown in residential sales, decline in housing prices and high office vacancies. Nevertheless, this current weakness is presenting a window for investors to access assets that would not be available in ‘good time’ and for better prices.

With contributions from Monica Uttam, Thought Leadership and Insights, Asia Pacific

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

When investing in less developed countries, you should be prepared to accept significantly large fluctuations in value.

Investment in certain securities listed in China can involve significant regulatory constraints that may affect liquidity and/or investment performance.

当資料ご利用上のご注意

当資料は情報提供を目的として、インベスコ・アセット・マネジメント株式会社（以下、「当社」）のグループに属する運用プロフェッショナルが英文で作成したものであり、法令に基づく開示書類でも特定ファンド等の勧誘資料でもありません。内容には正確を期していますが、必ずしも完全性を当社が保証するものではありません。また、当資料は信頼できる情報に基づいて作成されたものですが、その情報の確実性あるいは完結性を表明するものではありません。当資料に記載されている内容は既に変更されている場合があり、また、予告なく変更される場合があります。当資料には将来の市場の見通し等に関する記述が含まれている場合がありますが、それらは資料作成時における作成者の見解であり、将来の動向や成果を保証するものではありません。また、当資料に示す見解は、インベスコの他の運用チームの見解と異なる場合があります。過去のパフォーマンスや動向は将来の収益や成果を保証するものではありません。当社の事前の承認なく、当資料の一部または全部を使用、複製、転用、配布等することを禁じます。

IM2023-032

そのほかの投資関連情報はこちらをご覧ください。https://www.invesco.com/jp/ja/institutional/insights.html