3 implications from China’s common prosperity policy

China’s new common prosperity goal seeks to improve equality and equity for the Chinese people, but what does this mean for investors?

1. Slower growth

China’s 2022 GDP growth is likely to slow because of 2021’s regulatory crackdowns on numerous sectors and the funding squeeze in the real estate sector. We expect the Chinese policymakers to support growth by making it easier and cheaper for companies to access funding, as well as by increasing government spending. China’s slower growth should impact countries that export goods and commodities to China the most, but we believe this economic drag can be offset by policies, and hence China’s slower growth is unlikely to significantly hinder the global recovery.

2. Opportunities in the healthcare, consumer, and technology sectors

As the new policy will likely increase access to basic medical services and drugs, local healthcare companies offering high quality products at low costs can reap benefits. With income more equitably distributed, consumption might also increase. As such, companies that offer goods and services that appeal to millennials, Gen Z, and young families are likely to blossom. Finally, despite crackdowns on some technology sectors in 2021, we believe that there are opportunities in selected hardware, Artificial Intelligence, and the New Energy space.

3. Opportunities in China’s bond markets

As Chinese policy makers seek to stabilise growth in 2022, this should also help to support China’s bond markets. The Chinese property bond market presents opportunities after its sharp sell-off in 2021, but selecting the right credits is key. Defaults should also remain contained in China’s onshore bond market with the government wanting to prevent negative spill overs to other parts of the economy.

Curious to find out more? Explore the other themes in our 2022 Market Outlook.

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