China: Making solid progress on its Five-Year Plan

As the National People’s Congress convenes, we highlight three government priorities to watch

Mike_ShiaoThe annual National People’s Congress (NPC) started on March 5, 2017, with Premier Li Keqiang announcing key economic growth targets and major reform initiatives designed to help China achieve stable growth and become a “moderately prosperous” society by 2020. These announcements are in line with the vision that was laid down two years ago in China’s 13th Five-Year Plan.

China was largely on track with its policy targets in 2016. The economy grew 6.7% (as seen in the table below) while making progress in reducing industrial overcapacity and financial risks. 2017’s key economic targets are designed to build on that progress, with further fine-tuning in growth rates widely expected, to allow room for the Chinese government to proceed with reform issues such as overcapacity and leverage.

The table below compares the key targets announced this year and last year:

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China: Growth, debt and liquidity promise to capture the spotlight

2017 Investment Outlook series

Mike_ShiaoLooking ahead in 2017, the Invesco Equity Investment team in Asia believes the focus of attention for the Chinese economy and equity markets will be on growth, debt and liquidity. We expect China’s policymakers to focus their efforts on near-term growth stability, with reforms taking a secondary role for now. Consumption will continue to be the growth driver. China’s debt problem will linger on, but we see no imminent risk of an economic blowout. We are seeing a shift in loan activity from corporations to consumers, which we see as a positive development for the economy. As for liquidity, the existing Shanghai-Hong Kong Stock Connect and the recently launched Shenzhen-Hong Kong Stock Connect will continue to enhance market accessibility from both north- and southbound channels. In particular, we believe that global investors in offshore Chinese equities will benefit from the strong liquidity in the southbound channel. In this piece, we will explore these three topics in greater depth.

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Why we believe China A-shares may be included in the MSCI Emerging Markets Index in the coming years

We outline the importance of the Chinese economy to global markets and emerging markets investing

Mike_ShiaoGlobal index provider Morgan Stanley Capital International (MSCI) recently said it would not add China’s local currency shares (Chinese A-shares) to its benchmark emerging markets (EM) index due to concerns about transparency in Chinese markets and capital controls of regulators.

Given current market sentiment, it is perhaps not surprising to us that MSCI erred on the side of caution. However, we believe a small percentage of China A-share inclusion, such as 5%, is highly possible in the next

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