China has published a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that have left investors reeling. The blueprint states China wishes to:
“Actively promote legislation” in areas such as national security, technological innovation, public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk prevention, anti-monopoly, and foreign-related issues.
“Intensify law enforcement in key areas related to the vital interests of the people” including food and medicine, public health, natural resources, ecological environment, safety production, labour security, urban management, transportation, financial services, education, and training.
Ensure “healthy development of new business forms” with “good laws and good governance” related to the digital economy, Internet finance, artificial intelligence, big data, cloud computing, and other related legal systems
Strengthen the execution of administrative decision-making: “Once a major administrative decision has been made, it shall not be arbitrarily changed or suspended without legal procedures.”
Use the internet and big data in law enforcement: “Strengthen the construction of the national ‘Internet + supervision’ system and realize the integration and aggregation of data from supervision platforms by the end of 2022.”
Promote openness in government affairs: “Adhere to openness as the normal, non-openness as the exception, and have the government become more open and transparent to win more understanding.”
What does this mean for you?
Year to Date the MSCI IMI China index has returned -16%
China has published a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that have left investors reeling. The blueprint states China wishes to:
“Actively promote legislation” in areas such as national security, technological innovation, public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk prevention, anti-monopoly, and foreign-related issues.
“Intensify law enforcement in key areas related to the vital interests of the people” including food and medicine, public health, natural resources, ecological environment, safety production, labour security, urban management, transportation, financial services, education, and training.
Ensure “healthy development of new business forms” with “good laws and good governance” related to the digital economy, Internet finance, artificial intelligence, big data, cloud computing, and other related legal systems
Strengthen the execution of administrative decision-making: “Once a major administrative decision has been made, it shall not be arbitrarily changed or suspended without legal procedures.”
Use the internet and big data in law enforcement: “Strengthen the construction of the national ‘Internet + supervision’ system and realize the integration and aggregation of data from supervision platforms by the end of 2022.”
Promote openness in government affairs: “Adhere to openness as the normal, non-openness as the exception, and have the government become more open and transparent to win more understanding.”
What does this mean for you?
Year to Date the MSCI IMI China index has returned -16%
The MSCI IMI China Index captures large, mid, and small-cap representation of approximately 99% of the investable equity universe for China’s mainland market.
The index went through three significant periods of negative performance, Mid-February, and the month of July.
At the end of January, investors were concerned with liquidity conditions following a report suggesting the Chinese central bank was focusing more on money market interest rates than the size of its operations.
During the month of February, A sell-off across global markets occurred, especially tech sector equities, due to inflation expectations, sharp increases in U.S. treasury yields.
Alongside the global sell-off, China faced a particularly testing time as a result of 1) Hong Kong’s government moved to increase equity trading stamp duty 2) investors taking risk off the table due to news flows surrounding the US-China competition, and 3) renewed restrictions relating to travel and quarantining as a result of the ongoing pandemic ahead of the Chinese New Year.
While July’s underperformance may be attributed to investors’ nervousness surrounding future policy tightening.
Looking ahead, while it is understandable for investors to be nervous with regards to China’s pattern of tightening policy over recent years, China remains underrepresented in global equity indices, for example, China represents 4% of the MSCI ACWI Index while representing c. 16% of global equity market capitalisation (as of 31st December 2020).
Similarly, in favour of a pro-China stance, more Initial Public Offerings (IPOs) occurred in Mainland China than in any other region worldwide during 2020, as well as China being the country leader in Research & Development, forecasted to spend c. $620 Billion in 2021.
Daintree Wealth Management remains neutral on China at present as we maintain two eyes fixated on China’s blueprint and President Xi Jinping’s future.
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