China China China

China Update: In time of trouble, go with the flow of government money

Macro 12 minutes to read
Redmond Wong

Market Strategist, Greater China

Summary:  A new round of COVID outbreaks and a stringent pandemic control policy have dampened the growth outlook in China. In anticipation of the rolling out of massive infrastructure construction by the Chinese government to boost the economy, we look at the investment opportunities in the traditional an new infrastructure space. We also consider the medium-term cases for growth in hydrogen energy and cybersecurity.


China is to increase spending on infrastructure

As U.S. bond yields have moved higher than those of China and the Chinese renminbi has weakened substantially versus the U.S. dollar within a short period of time, China’s central bank’s room to manoeuvre in monetary easing is quite limited without jeopardising its goal of maintaining the relative stability of the renminbi versus the U.S. dollar, in which, energy and commodities are priced internationally.

The property sector is still in dire situation and will not be making the kind of contribution to the overall economy as in the past decade.  Exports, the key growth driver last year, will very likely to be unable to do the heavy-lifting to support the economy this year.  In April, China’s export growth decelerated to 3.9% YoY in USD terms.  Adjusting it for the rise in export prices, the real rate of growth in exports was negative in April.

The Chinese Government is set to increasingly rely on additional infrastructure spending to boost the economy.  At the Central Financial and Economic Affairs Commission meeting on April 26, President Xi Jinping called for stepping up infrastructure construction.  It is particularly noteworthy that he emphasized the need to look beyond economic returns of infrastructure projects and to consider the projects’ benefits to national security and social returns as well.  In other words, projects that have been rejected on internal rate of return and cash flow considerations may be reconsidered and launched.  He also pledged supports to local governments in getting financing for infrastructure projects.  Moreover, Xi’s call for rolling out more infrastructure construction can provide a cover for local government officials from balancing the risks between carrying out infrastructure construction and devoting time, effort and resources to pandemic control.  Without that, the assessment of political risks and rewards might tend to incentivize local government officials to focus on pandemic control at the expense of executing infrastructure projects. 

Although local governments’ budgets have been constrained substantially by the sharp fall in land sales revenues, they can tap on funding raised from the  RMB1.2 trillion special bonds issued last year and the RMB 1.4 trillion special bonds issued thus far this year to finance infrastructure projects, in addition to other supports to come their ways from the central government. 

The Central Financial and Economic Affairs Commission’s meeting on April 26, 2022 emphasized transportation, energy, and water conservancy among the traditional infrastructure projects.

On May 6, 2022, the General Offices of the Chinese Communist Party’s Central Committee and China’s State Council released a joint guideline to boost the development and urbanization of county seats throughout China’s rural areas.  The guideline calls for building industrial bases and constructing public infrastructure and services in county seats and making medical care, education, and elderly care more accessible in rural areas surrounding county seats.

New Infrastructure

In addition to traditional infrastructure, China is taking to high gear of its spending on new infrastructure.  The term “New Infrastructure” was coined in December 2018 and has been more frequently mentioned in the Chinese Government policy initiatives since the beginning of 2020 and the scope has been expanded to include industries in seven key areas: (1) 5G base stations and networks, (2) data centers, (3) Ultra High Voltage (UHV), (4) electric vehicle charging piles, (5) artificial intelligence, (6) Industrial Internet of Things, and (7) intercity rail and urban transit network.  One of the key characteristics of new infrastructure is its potential in enhancing technological innovation and improvement in productivity. 

Hydrogen Energy

When China launched its 13th Five Year Plan in 2016, fuel cell electric vehicles was first mentioned.  In November 2020, in its New Energy Vehicle Industry Development Plan 2021-2035, the State Council set out initiatives to develop a wider hydrogen energy infrastructure, in addition to fuel cell applications. 

Since 2020, the Ministry of Finance (the MoF) has been providing financial incentives for cities that launch pilot programmes to build up hydrogen energy and fuel cell vehicle industries and its supply chain. The MoF focuses on promoting the use of hydrogen energy medium to long-range and medium to heavy commercial vehicles and their related hydrogen infrastructure networks.  About 20 cities in China, including Beijing and Shanghai have launched such pilot programmes in using hydrogen energy vehicles.

China 14th Five Year Plan in 2021 reiterated the development initiatives for hydrogen energy and fuel cell vehicles.  Accordingly, in March 2022, the National Development and Reform Commission (NDRC) and the National Energy Administration jointly released a Hydrogen Energy Medium to Long-term Plan 2021-2035 (the Plan), which affirms the strategic position of hydrogen energy in China’s green transformation and set out the development goals for the hydrogen energy and fuel cell vehicle industries.

T
he Plan aims at establish a system and environment for the development of technologies and processes for the production, storage and transportation of hydrogen energy as well as working towards clean energy hydrogen production.  It targets to reach annual deployment of 50,000 fuel cell vehicles and build comprehensive networks of hydrogen refuel stations by 2025. 

There are three major types of technology to manufacture hydrogen.  1) grey hydrogen: using coal, petroleum or natural gas as feedstock; 2) blue hydrogen: using conventional natural gas-based process coupled with carbon capture; 3) green hydrogen: using renewable energy to produce hydrogen from water electrolysis.  The plan targets to construct a clean energy (blue and green) hydrogen production and supply system by 2030 and envision to establish a diversified hydrogen ecosystem of manufacturing, transportation and storage of renewable energy hydrogen production by 2035. 

Cybersecurity

China released the Critical Data Infrastructure Security Protection Regulation in 2021.  The regulation seeks to protect critical data from hacking and malwares that could result in damage to national security, social order or public interest.  It defines the required responsibilities of the entities that hold the critical data and penalties for those fail to comply.  In particular, it requires local governments and enterprises to be responsible for monitoring, defending, and managing cybersecurity risks in their network and information systems.  The regulation also requires local governments and enterprises to set up early warning mechanism against cybersecurity threats and vulnerabilities, to carry out defence exercises and to conduct regular checks of their information systems. 

In addition to the regulation mentioned above, China enacted the China Data Security Law in September 2021. The new law regulates data collection, processing, and transition, beyond the traditional measures of database audits and encryption. 

When China rolled out its 14th Five Year Plan, it increased its cybersecurity budget by three times from the 13th Five Year Plan.  The Ministry of Industry and Information Technology (MIIT) guided government departments and state-own enterprises with critical data to raise their cybersecurity spending to 10% of information technology spending from 3% previously. 

The new regulation, law, the enlarged national budget allocation, and the MIIT’s guidance help induce growth in demand for cybersecurity. 

Going with the flow of government money

In a turbulent global investment environment and slowing Chinese economy, we consider that it may be rewarding to go at the direction in which the Chinese government’s money is going. 

We expect that the Chinese authorities are on high gear to roll out infrastructure construction projects in transportation, energy and water conservancy and the new infrastructure areas in 5G, data centers, ultra-high voltage, EV charging piles, AI, industrial internet of things and inter-city rail and urban transit network.  It may be more fruitful to look for investment opportunities in these areas than the others that have less tailwinds behind them.

For the medium-term, we see interesting multi-year growth potentials in the areas of hydrogen energy and cybersecurity.  Monitoring companies in these industries and relevant value chains may prove to be fruitful. 

免責條款

盛寶銀行集團各實體均提供只限執行的服務和分析存取權限,允許客戶查詢和/或使用在網站或透過網站提供的內容。此內容不是為了且也不會改變或拓展只限執行的服務。這種存取權限和使用情況一律受到以下約束:(i)使用條款;(ii)完整免責條款;(iii)風險警告;(iv)參與規則,及(v)適用於「盛寶新聞與研究」和/或其內容的通知,以及(在相關情況下)適用的條款,以監管盛寶銀行集團成員網站上的超連結的使用情況(透過這些連結可存取「盛寶新聞與研究」)。因此,該等內容僅作為資訊提供。當中需特別注意,一切顧問建議均不得視為由任何盛寶銀行集團實體提供或推薦,亦不應解釋為向您提供任何訂購、買入或售出金融工具的誘因或動機。您的一切交易或投資行動,必須為個人自行作出、完全知情的決定。因此,如果您因根據「盛寶新聞與研究」提供的資訊作出任何投資決定或由於使用「盛寶新聞與研究」而蒙受損失,盛寶銀行集團實體將不會承擔任何責任。所發出的訂單和已生效的交易應視為打算在客戶所在的轄區和/或客戶開設並維護其交易賬戶的轄區內的盛寶銀行集團實體下為客戶的賬戶發出或執行。「盛寶新聞與研究」不包含(並且不應解釋為包含)財務、投資、稅收或交易建議,或盛寶銀行集團提供、推薦或認可的任何形式的建議,並且不應解釋為我們的交易價格記錄,或在任何金融工具中作出認購、出售或購買的提議、激勵或要求。對於任何被解釋為投資研究的內容而言,您必須注意並接受,該內容並非旨在,也未根據旨在促進投資研究獨立性的法律要求而準備,因此應被視為根據相關法律提供的營銷通訊。

請參閱我們的免責條款:
非獨立投資研究通知 (https://www.home.saxo/legal/niird/notification)
完整免責條款 (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
完整免責條款 (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

盛寶金融 (香港) 有限公司
中環皇后大道中12號
上海商業銀行大廈19樓

聯絡盛寶

請選擇地區

中國香港
中國香港

盛寶金融(香港)有限公司持有由香港證券及期貨事務監察委員會發出的第1類受規管活動 (證券交易)﹔第2類受規管活動(期貨交易) ﹔第3類受規管活動(槓桿式外匯交易) ﹔第4類受規管活動(就證券提供意見) 及第9類受規管活動(提供資產管理)的牌照(中央號碼:AVD061)。註冊地址:中環皇后大道中12號上海商業銀行大廈19樓

點擊本站的連結,代表您瞭解和同意離開盛寶金融網站,前往由盛寶銀行集團管理的網站,並接受其條款的約束。

Apple,iPad和iPhone是Apple Inc.在美國和其他國家註冊的商標。 AppStore是Apple Inc.的服務標誌。

本網站所提供的信息以及盛寶金融提供的任何產品和服務不適用於美國和日本居住的投資者,亦非意圖分發給會違反當地國家或轄區內之法律或法規的任何人。請點擊查看完整免責聲明。