China’s National People Congress (NPC) concluded its 10-day long annual meeting on 13 March 2023, during which Xi Jinping was confirmed as President for an unprecedented third term. As widely expected, the top 10 positions of the State Council saw a reshuffle, with Li Qiang being appointed as China’s new Premier. People’s Bank of China (PBOC) Governor Yi Gang extended his term, which is seen as positive for the market, as a sign of policy continuity.
Li Qiang held his first press conference after the closing ceremony – broadly, his comments were interpreted as being market-friendly, pro-business and pragmatic (“Li Qiang Economics”).
Below we summarise the key takeaways:
1. “Around 5%” Growth Target
“Most ordinary people don’t watch GDP growth every day, and they care more about housing, jobs, income, education, medical services, environment and others.”
While this does not come as a surprise, investors may be disappointed by the conservative target, as consensus would have hoped for a higher target at 5.5% to make up for the slow growth last year. One could argue setting the growth target towards the lower end of expectations could indicate that regulatory crackdowns that had been implemented over the past two years are not over. That said, we are of the view that it is more likely the government does not want to over-stimulate the economy after reopening, as policymakers aim to achieve both qualitative and quantitative improvement of its economy this year. Another reason behind the modest growth target could be due to the fact China missed its “5.5%” growth target in 2022 on the back of zero-covid measures and global economic slowdown.
2. Support for Private Sector
Premier Li reiterated the government’s “unwavering support” for private enterprises, pledging a better environment for entrepreneurs, equal treatment for state and private firms, as well as protection for the rights and interests of the private economy in accordance to law. This commitment is important as it allays worries that the Chinese government favours state-owned enterprises. Furthermore, after a period of relentless regulatory clampdown on certain private sectors, his remarks on this topic were of assurance to the market.
3. Geopolitical Tensions
Regarding discussions on US-China relations, Premier Li reiterated cooperation would benefit both economies, while “decoupling” would benefit no one. He stated that opening-up and reform are in-line with China’s long-term vision.
4. Technology and Demographics
Premier Li highlighted the importance of technology and innovation in promoting a modern industrial system. China would also counter the impact of a declining working population with a higher quality labour by achieving a higher level of education.
Investment Implications
After digesting the takeaways from NPC, we maintain our positive medium-to-long term view on China. While there was some disappointment that the GDP growth target was set at the lower end of market expectations and there was no “bazooka” stimulus – particularly for the embattled property market – we believe that China is now taking a more pragmatic approach towards achieving sustainable and high quality growth. While broad directions are important, we will be watching closely for more concrete details of further measures and execution.
We are also encouraged by the release of recent numbers as China macro data for January and February came in better-than-expected. Consumption and service activity, investment and trade numbers beat market expectations, primarily driven by post-reopening boost and front-loaded macro policy support. In addition, China’s latest home new prices snapped a 17 month deflation streak in February with a positive sequential growth. We see this as a positive indicator of improving housing price expectations as post-reopening recovery kicks in.
As the rally in Chinese equities has run out of steam in the past month, we see the pull back as a potential pocket of investment opportunity for investors.
Footnote: All data are sourced from Lion Global Investors and Bloomberg as at 17 March 2023 unless otherwise stated.
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