More dire predictions for China’s much-anticipated Third Plenary Session, which kicks off on Monday, suggest the financial sector will remain constrained despite slowing economic growth. On the other hand, what is generally expected is to strengthen support for high-tech and manufacturing industries. “It’s not necessarily bad news for investors because everyone knows where the money is going,” Wang Dan, chief economist at Hang Seng Bank (China), told me last week – a priority during his term. “Industry, advanced manufacturing, and high value-added equipment manufacturing have performed well in the past three years and will continue to perform well,” she said. Policy has long been an important guide for investors in China’s top-down economy. But in recent years, Beijing has made clear its desire to end excessive financial speculation in real estate and other economic sectors. Han Wenxiu, executive deputy director of the Central Financial and Economic Office, said that finance must return to its roots, prevent it from straying from reality into virtuality, and firmly establish the starting point and goal of serving the real economy. Measures, the third of which is to develop the “real economy” and “prevent the real economy from turning”. Approximately seven plenary meetings are held in each session. Several areas that are crucial to China’s long-term development. “These include promoting technological self-sufficiency, addressing demographic headwinds, and improving social welfare systems related to employment, income, education, healthcare, housing, child/elderly care, etc.” When discussing China’s global technological superiority, state media often emphasize Three export categories: new energy vehicles, lithium batteries and solar energy. Goldman Sachs released a lengthy report on Chinese solar on July 11, predicting that the industry is nearing the bottom. “In addition, we have begun to see early signs of an encouraging policy stance to curb new capacity additions and predatory pricing, which we believe will be critical to accelerating industry consolidation toward leaders with strong (balance sheet), R&D and cost advantages. It’s a good sign for investors,” said analyst Jacqueline Du and her team. “We believe the next 12 months will be the most interesting time to enter the solar industry in search of long-term winners,” they said. One of the new Chinese solar stocks with a buy rating from Goldman Sachs analysts is Daqo New Energy, a company in US-listed polycrystalline silicon manufacturer for solar power generation companies. Analysts say Daqo will have 14% of the global market share by 2023 and has no debt, making it the company with the strongest balance sheet within Goldman Sachs’ China solar business. “We believe this solid balance sheet provides Daqi with a strong moat to survive the current industry downturn and emerge as a consolidator over time.” The solar company is listed in the U.S. Shares closed at $16.89 on Friday, up nearly 30% from Sachs’ price target of $21.80. On July 8, a team of Goldman Sachs analysts headed by Fu Si issued a report looking for opportunities in China’s small-cap stocks based on their R&D intensity, overseas business, and consistency with Beijing’s policy directives. Of the 30 stocks they screened, only two companies met all three qualifications: IKD, an auto parts company, and Autowell, a maker of solar energy, lithium batteries and semiconductor factory equipment. Both stocks are listed in Shanghai. “China has made huge investments in supply chain, manufacturing and high technology. This will translate into productivity and even better production capabilities. This is a unique advantage,” Wang said. “Relying on infrastructure or housing is not going to make China… a high-income modern society.” “So the only way out is to actually increase productivity. The odds of success are good, but there are a lot of uncertainties along the way, and finance Risk is one of them,” she said. “I think they’re going to try to address that at this meeting.”
