The consumption, renewables and electric vehicle sectors are expected to drive China's 5% GDP growth this year, with the tech and real estate industries unlikely to see the exponential growth they enjoyed in previous periods.
The annual gathering of China's National People's Congress — the country's top legislature — ended on Monday after nine days, during which China's top leaders were confirmed and new policies were laid out including the setting of its GDP target growth for this year.
While the target growth of "around 5%" — according to newly appointed Premier Li Qiang — fell slightly below market expectations, it was "not really that far off," said Andrew Lee, Hong Kong-based investment director at Capital Group, which has $2.2 trillion in assets under management.
The markets were expecting China to set the GDP growth target at more than 5%, he said, and the relatively conservative target reflected China's focus on building stability in the economy.
"Stability seems to be a real focus and of utmost importance … We think that the Chinese economy will be experiencing better growth this year compared to the last largely driven by COVID reopening and the policy measures that would aim to stabilize growth," Mr. Lee said.
China had 3% GDP growth in 2022, down from 8.1% for 2021.
"But at the same time, we're cognizant of the potential risk of it going lower than the 5% (target), given the fact that there could be a potential contraction in exports, as well as the still weak property sector, which contributes around 25% of the country's GDP," he added.
The target still indicates a pro-growth stance, said Jing Liu, chief economist for Greater China at HSBC Holdings. "The conservative growth target to some extent reflects a cautious approach in light of ongoing uncertainties, as well as the government's desire to transition from a credit-driven growth model to a more sustainable, inclusive and high-quality growth model," she said.
HSBC expects GDP growth to reach 5.6% this year, "propelled by domestic consumption and ongoing policy support for medium- and longer-term growth drivers," she added.
Generally, policies focused on high-speed growth in China have benefited value stocks such as infrastructure, property and building materials, while policies focused on high-quality growth have benefited growth sections such as information technology, electric vehicles and solar, according to analysis by the equity strategy team at HSBC Qianhai Securities — the securities joint venture between HSBC and Qianhai Financial Holdings.
"This year's lower-than-expected growth target should benefit long-term growth names, such as info tech, health care and high-end manufacturing," the team wrote in an email interview. "In 2023, we also expect (state-owned enterprises) and the government to expand their software spending, and believe (semiconductor) testing equipment will see a cyclical bottom before the semiconductor sector" in the second half of the year.
The team added that they have already observed several indicators of the semiconductor sector bottoming, for instance falling demand for panel and passive components, and cuts to capital expenditure at semiconductor firms such as ASE Technology Holding and Amkor Technology.