Interpretation of the Chinese Central Political Bureau Meeting: Focus on the Internet and Undervalued State-Owned Enterprises | Moomoo Research

On September 26, 2024, the Chinese government held a crucial Politburo meeting, which not only analyzed the current economic situation, but also formulated an economic work plan for the coming period. At this particular moment, the meeting demonstrated a series of extraordinary strategies aimed at stabilizing economic growth and ensuring the smooth operation of the market by moderately easing monetary policy. China concept stocks continue to surge as the Chinese government has been releasing frequent policy favorites recently. Let's explore what signals were released at the Politburo meeting and what investment opportunities lie behind them.

The meeting revealed that China is reorienting its macro-control policies in favor of using quantitative easing-like tools to support the economy. This means that the central bank may take more aggressive measures, such as lowering interest rates, reducing the burden of lending, and even reducing the percentage of down payment required to purchase a home, all in an effort to ease the current challenges facing the economy.

At the same time, the Government recognized the importance of stabilizing the real estate market for overall economic growth. For the first time, the meeting explicitly stated the need to "promote the stability of the real estate market" and emphasized the need to boost consumption by increasing the spending power of low- and middle-income households, thereby boosting economic growth. In addition, the meeting emphasized support for groups with employment difficulties, reflecting the government's concern for people's livelihoods.

The meeting was important because it was held at a special time, demonstrating the Government's deep understanding of the current state of the economy and expressing its determination to "maintain 5 per cent" economic growth. Unlike in the past, this meeting focused on economic issues, which is clearly a response to the economic pressures of recent months.

The change in policy logic is mainly manifested in two aspects: first, the change in the approach to macro-control, which includes more support for the capital market as well as long-term institutional design; and second, the re-enforcement of the role of real estate as an engine of economic growth. The Government also intends to activate the market through a series of measures, such as increasing lending support for high-quality projects and promoting the reuse of land stock.

Looking ahead, we expect more policy measures to be introduced, particularly in the areas of fiscal stimulus, real estate market easing and local debt management. The government may close a fiscal gap of over 2.5 trillion yuan by increasing treasury bond issuance, while allowing local governments greater autonomy in areas such as education, healthcare and social security.

For investors, more investment opportunities may emerge in the stock market, although the bond market may experience some volatility in the short term. However, with the implementation of measures to reduce interest rates, the yield on the 10-year Treasury bond is expected to fall to below 2 per cent.

1. Fiscal policy:

。Increased fiscal counter-cyclical adjustment: The Government plans to raise funds through the issuance of additional treasury bonds and other means to support economic development and increase market liquidity.

。 Support for the local economy: Ensure fiscal flexibility for local governments in areas such as education, health care and social security, and encourage centralized financial support.

。Long-term financing arrangements: Establishment of a special debt fund to help local governments make the necessary investments while maintaining financial health.

2. Real Estate Policy:

。Promoting the stability of the real estate market: taking measures to prevent the decline of housing prices and ensure the healthy functioning of the real estate market.

。Strict control of incremental growth and optimization of stock: limiting the number of new houses to be built and focusing on quality improvement and renovation of existing houses.

。Providing financial support: increasing loan support for quality real estate projects and encouraging the revitalization of idle land resources.

3. Capital Markets Policy:

。Promoting long-term capital into the market: Encouraging long-term capital, such as pension funds and insurance funds, to enter the stock market and improve market stability.

。 Support for mergers, acquisitions and reorganizations: Encourage enterprises in strategic emerging industries to engage in mergers, acquisitions and reorganizations to improve market competitiveness.

。Protecting the rights and interests of small and medium-sized investors: improving relevant laws and regulations and setting up a specialized investor protection mechanism.

4. Consumption promotion policies:

。Enhancing consumption capacity: raising the income level of low and middle-income groups through policy instruments to stimulate consumption potential.

。Guiding consumption upgrading: encouraging consumption in education, health care, and elderly care to meet diversified needs.

。Establishment of special funds: to support the implementation of policies to promote consumption and to help improve the quality of life of low- and middle- income groups.

5. Employment security policy:

。Strengthening support for groups in difficulty in employment: providing more training and employment opportunities and ensuring the social integration of groups in difficulty.

。Promoting the Private Economy Promotion Law: providing a better policy environment for the development of private enterprises.

。Encouraging foreign investment: simplifying procedures for foreign investment, attracting more foreign investment and promoting employment.

Through the above policy measures, the Chinese government aims to maintain the stability of the economic fundamentals and promote sustainable economic development amid a complex and changing economic environment. Recently, as the Chinese government has frequently announced favorable policies, Chinese concept stocks have experienced significant gains. As we mentioned in our previous article, in the context of current policy benefits, investors can seize investment opportunities that benefit from the fundamentals, with a strong focus on the internet sector and undervalued state-owned enterprises, paying attention to their growth potential and improvement in shareholder returns under the new policy environment. If there are difficulties in selecting individual stocks, one can consider investing in ETFs such as the Hang Seng Tech ETF, the Bosera Central State-Owned Enterprises Dividend ETF (3437), the China Concept Internet Index ETF (KWEB), CWEB, YINN, XPP, CHAU, and others.