Gloomier forecasts for China’s much-anticipated “Third Plenum”, which starts on Monday, suggest the financial sector will come under pressure despite slowing economic growth. What is generally expected, instead, is increased support for high-tech and manufacturing. “It’s not necessarily bad news for investors because everyone knows exactly where the money is going,” Dan Wang, chief economist at Hang Seng Bank (China), said last week, although she expects moderate growth in the near term now Beijing takes the longer term approach. priorities in the long term. “Industr[ials]advanced manufacturing and making higher value-added equipment, they have done well over the past three years and will continue to do well,” she said. Policy has long been a key guide for investors in China’s top-down economy. In recent years, Beijing has made clear that it wants to put an end to what it sees as excessive financial speculation in parts of the economy such as the real estate sector. The financial world must return to its original form, a deviation from reality to the virtual appearance, and resolutely serving the real economy is the starting and ending goal,” wrote Han Wenxiu, executive deputy director of the Bureau of Financial and Economic Affairs of the Central Committee, last month in a widely read article. This is evident from a CNBC translation from Chinese. The official English summary listed four measures, the third of which called for the development of the “real economy” and “guarding against a shift from the real economy to the financial economy.” The last ‘Third Plenum’ took place in 2018. It is a meeting of the Central Committee of the Chinese Communist Party, whose members are elected every five years and hold approximately seven plenary meetings each term. The third usually focuses on the economy. This year’s meeting concludes on Thursday. It was originally expected to take place in the autumn of last year, but this was postponed without explanation. “We expect the upcoming Third Plenum to focus on several areas critical to China’s long-term economic path,” Bank of America economists wrote in a July 8 report. “These include promoting self-sufficiency in technology, addressing demographic headwinds and improving the social security system with regard to employment, income, education, medical care, housing, child/senior care, etc.” When state media discuss China’s global tech advantages, they often emphasize three export categories: new energy vehicles, lithium batteries and solar energy. Goldman Sachs published a comprehensive report on Chinese solar energy on July 11, in anticipation that the sector is nearing a bottom. “Additionally, we are beginning to see the first signs of encouraging policies to curb new capacity and predatory pricing, which we believe should bode well for accelerated industry consolidation towards leaders with strong [balance sheet]Analysts Jacqueline Du and a team said: “We believe the next twelve months would be the most interesting time to zero in on the solar sector and look for long-term winners,” they said. Goldman Sachs’ newly initiated buy-rated Chinese solar stock is Daqo New Energy, a US-listed manufacturer of polysilicon for solar companies. Daqo had 14% of the global market share in 2023 and had no debt, giving it the strongest balance sheet. The analysts said this solid balance sheet has put Daqo in a strong position to survive the current industry downturn and become a consolidator over time Friday, for an upside of nearly 30% from Goldman’s $21 price target, 80, a separate team of Goldman analysts led by Si Fu published a report on July 8 examining the opportunities in Chinese small-cap stocks based on their level of R&D intensity. , foreign affairs and alignment with Beijing’s policy guidelines. Only two names on their 30-stock screen met all three of these qualifications: IKD, an auto parts company, and Autowell, a manufacturer of equipment for solar, lithium battery and semiconductor factories. Both shares are listed in Shanghai. “China is investing a lot in its supply chain, manufacturing and high-tech. That will translate into productivity and even better production capacity. That is a unique strength,” said Wang. “Relying on infrastructure or housing will not make China… this modern, high-income society.” “So the only way out is to actually improve productivity. There is a good chance that it can be successful, but there are many uncertainties along the way, including financial risks,” she said. “I think they will try to address that at this meeting.”
China’s third plenum starts this week. How investors can play it
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