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China’s Economy Has Been Undergoing Restructuring - CCBIS Expects the Agriculture, Consumer and Environmental Protection Sectors to Benefit as a Result

2011-03-15

CCB International Securities (CCBIS) released today a report on the investment opportunities brought about by China’s 12th Five-Year Plan (12FYP). CCBIS expects further pro-industry incentives to be announced after the 4th session of the 11th CPPCC National Committee and 4th session of the National People’s Congress (the “Two Congresses”). The Two Congresses have been focused on the 12FYP. CCBIS believes that China’s economic development is undergoing a structural change as it switches from a strategy of “quantity first” to one of “quality first”. Priority is being given to controlling inflation, adjusting the country’s patterns of economic growth, increasing the standard of living of the populace and accelerating the development of the seven emerging strategic industries. Sectors that will noticeably benefit from these changes are agriculture, consumer, building materials and environmental protection/energy conservation. Our presentation is broken down into two sections, “Development of the Chinese economy”and “Investment strategies in Hong Kong and on the mainland”. Both will be presented by Dr. Peter So, Managing Director and Co-Head of Research and Dr. Banny Lam, Associate Director and Economist at CCBIS. During the 12FYP period, from 2011 to 2015, the target for annual GDP growth will be set at 7%, which is lower than the 7.5% that was the target of the 11FYP, reflecting the government’s shift in emphasis from a monetary policy characterized as one of “moderate easing” to one of “prudence”. According to Dr. Lam, “Falling expectations for GDP growth and renewed emphasis on economic restructuring as outlined in the 12FYP may alleviate inflation pressure and improved social harmony, both facilitating healthier and more sustainable development. Towards this end, the government will earmark up to two-thirds of public expenditure towards improving the standard of living of the populace through initiatives like enhancing agricultural productivity to ensure a stable food supply, raising per-capita disposable income, increasing the availability of economic housing and switching to non-fixed asset fiscal investments, including such areas as environmental protection, public healthcare improvements and employment. These new policies represent good investment indicators to investors. Dr So adds, “Taxation reform will cut individual income tax for low-to-middle-income groups, which will, in turn, raise per-capita disposable income, thereby achieving the ultimate objective of alleviating the burden on lower income groups. Personal income growth will be accompanied by increased consumer spending power, which will be good for the consumer sector. Cooling down the housing market will be yet another priority of China’s government in 2011. Economic housing and property taxes are the two key market-managing mechanisms employed by the government to deal directly with the colossal demand for affordable housing in all of China’s cities. Accelerating urbanisation and construction will, in the medium term, benefit construction service and materials, as well as the water conservation industry.” CCBIS notes that central and local governments are planning to invest an average of RMB400 billion annually in water conservation construction over the next 10 years. Agricultural subsidies and minimum grain purchase prices will be raised, meaning companies engaged in farming and irrigation equipment supplies will benefit, and particularly leading companies within the industry. Other priorities of the 12FYP include environmental protection and energy conservation. It follows that during the next five years, the development of traditional industries characterized by high energy consumption and emissions – steel plants and traditional processing industries, for example – will be put under greater government scrutiny, while industries related to environmental protection and energy conservation will enjoy government support. For more information about our research, please visit http://www.ccbintl.com/eng/download.aspx?category_id=6

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