China's annual parliamentary meeting has begun to approve national priorities for 2021. This is a gathering of higher-ups in the government to sort out leadership changes and give details on various government issues. Typically, the gathering is largely symbolic with most major moves announced at the gathering but already having been decided in the weeks leading up to the event.
However, there's more focus on the meeting as it is the start of China's 5-year development plan and the 100th anniversary of the ruling Communist Party. Additionally, investors were eager to get more insight into China's economy given the number of uncertainties.
Chinese Premier Li Keqiang said that China is targeting 6% growth, 5.5% unemployment, and the creation of 11 million new urban jobs in 2021. It's also looking for a 3% increase in the consumer price index.
In many ways, China is a harbinger for the global economy as it was the first to grapple with the coronavirus. It is also one of the first countries returning to normal as it implemented aggressive and draconian policies to curb the virus' outbreak.
2021 Prospects
Last year, China's economy grew 2.3%. This is a reflection that many of the country's economic indicators had returned to 2019 levels around September. These include miles driven, industrial production, and consumer spending. Of course, one factor has been the nature of the pandemic.
The pandemic resulted in a big boost for the goods-producing parts of the economy as demand for these items was not dented by the coronavirus. Rather, most economic weakness was concentrated in segments like services and travel. People were still able to go to Walmart
Of course, this dynamic was exacerbated by the stimulus payments. The stimulus led to a record-setting month in terms of personal income, however it came when pockets were already flush due to decreased spending with so many outlets unavailable. Of course, China remains the world's largest exporter and is part of the supply chain for most items sold around the world. Thus, it's not surprising that China was the only major economy to show growth in 2020.
Chinese Stock Market Outlook
Since the March 2020 bottom, the Shanghai Stock Exchange is up 32% which is much less than the US and other major economies. Of course, the index's losses were much more muted than other countries due to its early vigilance.
However, we are seeing the same type of rotation in Chinese stocks that we are seeing in the US. High-multiple tech stocks are underperforming, while stock connected to the real economy are thriving. Many of these stocks have underperformed for a decade, so there is the potential for multiple-expansion and earnings growth which can lead to significant returns for investors. Therefore, investors should look at stocks like PetroChina
