China's 5 Year Plan
24.08.2010
Spotlight on China's '5 year plan'
Since 1953, the Chinese government has produced what it calls its '5 year plan'; a detailed plan telling of the ways in which it intends to drive forward its vast economy. The seemingly simple idea was adopted from a similar model that returned impressive results for Stalin's Russia in the 1950s (the only country that would sign a trade treaty with communist China, as it was setting its path to become the global super power it is today).
The amount of money currently invested in Chinese equity funds, coupled with the recent news that it has surpassed Japan to become (officially) the world's second largest economy means that there will be more interest than ever on what will be the 12th 5 year plan, currently being drafted in readiness to run from March 2011 to 2015.
As with most government reports of this type, leaked information released prior to the official publication of the report will have fund managers the world over second-guessing as to how to position their funds in readiness. Additionally, such is the sensitivity of markets at the moment; the release of any advanced information from the report may have profound effects on fund prices.
It is thought that in-particular, consumer, environment and infrastructure themes will play a dominant role in China's next five year plan, according to fund managers.
Fen Sung, manager of the Premier China Enterprise fund, said the five year plan is one of the biggest information inputs into allocation decisions, saying "It is important to look at what the Chinese government is doing and to position yourself for this. Chinese government policy is the biggest thing that affects the stock market,".
Sung said he believes the Chinese consumer will still be on the agenda for the government.
"This is mainly because China wants to move away from being so export orientated and wants to be a more balanced economy. It still wants to concentrate on exports but it doesn't want to be so reliant on them. This is because it has seen what happens when the currency strengthens or weakens or when global growth slows - it affects their exports," he explained.
"China will still continue with its infrastructure plans such as railways and building roads, but there will still be an emphasis on improving the healthcare system, helping the consumer. These are the areas which I particularly focus."
Sung said that water is currently a big topic in China at the moment and that the country is spending a lot of money on processing waste water.
"The environmental theme will be here for a long time so I do have positions in the fund to benefit from this. Companies that I invest in will work with the government, they will process the water to an adequate level and then put it back in the rivers and this is what needs to be done otherwise they will have big problems of shortages and pollution."
William Fong, manager of the Baring China Select fund and Baring China Growth fund, also expects the Chinese government to focus on consumption.
"Urban consumption has already started to improve and it is going up very strongly, but we still see that the purchasing power from the rural area is yet to pick up even though this year we have seen a slight increase. I do expect the Chinese government to continue to support and drive the rural area to encourage people to increase their spending on consumption. They need to make their consumption demand strong in order to sustain the overall economy," he said.
Fong also pointed to environmental issues, saying the government should focus on this area.
"I expect the Chinese government to continue to encourage the industry to phase out those who are not efficient or are high polluting and upgrade to the more environmentally friendly and more efficient facilities," he said.
Synergi Investment has access to a number of funds available that enable your clients to participate in the China investment story, ranging from pure equity-focussed funds to specialist China environmental funds; contact us for further information.
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