Fluctuations in China’s investment market will continue this year as the pressure of the economic downturn continues, a domestic think tank has reported in its annual review.
China’s Investment 2016, issued by JIC Institute of Investment Research, notes that insufficient investment demand is the leading factor in China’s economic downturn, but the tide is likely to turn during the year.
After several years of decline, investment is expected to stabilize then pick up later this year. The think tank calculates the growth rate of fixed asset investment at 10 percent this year.
Zhang Liqun, a macro-economy researcher with the Development Research Center of the State Council, said the central government will finally see the results of the efforts it has made to stabilize growth since 2012.
“In 2012, infrastructure investment accounted for 17 percent of overall investment nationwide, and the figure increased to 22 percent in 2015,” Zhang said.
According to the report, major investment opportunities this year lie in three major areas: independent innovation, industry upgrades and changes in consumption.
Innovation is key to the transition from an economy that has been inefficient and environmentally unfriendly into one that better meets the country’s needs across industries, as outlined by the central authorities.
Recently launched national strategic plans, including “Made in China 2025” and “Internet Plus”, will propel the economy forward by fueling the development of industries that add value, are knowledge- and technology-intensive and are green and low-carbon.
As to consumption, the State Council issued two guidance documents in December to promote trends that will drive economic growth from investment and exports to consumption.
International evidence indicates that when a country’s per capita GDP exceeds $5,000, consumption habits change and people spend more on culture, entertainment and health.
Since China’s per capita GDP has reached $8,000, there will be abundant investment opportunities to meet changing trends in consumption.
According to a market review by the research institute, investors should focus on the foreign exchange market, the stock market, the real estate market in first-tier cities and fixed income trust products.
The foreign exchange market is likely to see more opportunities this year despite turbulence. The institute cited a large probability of a strong US dollar and a gloomy global economy, and anticipation the Chinese currency will devalue, although the depreciation range is expected to be modest. The euro, pound and yen, influenced by the US dollar, were predicted to fluctuate.
Downward interest rates and the implementation of a registration-based IPO system should lead China’s stock market to slowly bottom out with fluctuations this year.
“According to our rating, investment returns in these markets are expected to be 4 to 8 percent,” said Zhang Zhiqian, the think tank’s deputy secretary-general. “The investment risk is relatively controllable.”
But investors, whether organizations or individuals, face the common challenge of asset allocation in various fields. There is a so-called “asset shortage” in which capital has difficulty in finding assets with high returns.
On the demand side, due to the Central Bank’s successive interest rate cuts since 2014 and the drastic stock plunge in the latter half of last year, a huge amount of capital is seeking financial assets with relatively higher returns as well as lower risks.
On the supply side, investments with high returns in the past, such as real estate, show declining investment returns that will continue to fall this year.
Li Yang, president of the National Finance and Development Laboratory, suggests investors pay attention to the urban infrastructure field, which has “real potential and real problems” in China.
“From the perspective of the national economy, I think investment should focus on this field,” Li said.
“The financing and investment mechanism arrangement in this field are of great significance.”