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China’s recent push to regulate the country’s fastest-growing sectors begs the question of whether the market is still investable. No industry may seem safe from Beijing’s reach. Even finding reliable data could get that much harder. But that looks too pessimistic.
Sectors crucial to Beijing’s long-term industrial policy still offer growth potential. It also helps if the owners of these companies keep low profiles.
Beijing has two important long-term targets. Its “Made in China 2025” blueprint, which aims to advance local technology and manufacturing capabilities, and its goal of achieving carbon neutrality by 2060. Both initiatives overlap in supporting makers of renewable energy products, electric cars and batteries, shipbuilders, and chipmakers. Of these, renewable energy stocks and electric car makers offer plenty of momentum.
Within renewable energy, solar panel makers have been overlooked. Shares of the largest, JinkoSolar have fallen 24 per cent this year. Local peer Xinyi Solar Holdings has lost a fifth as the sector faces supply chain disruptions and rising input prices. JinkoSolar trades at 15 times forward earnings, at a discount of over a fifth to global rival Canadian Solar.
Yet China dominates the global market, accounting for about three-quarter’s of the supply. At home, solar power capacity could expand by a quarter this year alone with up to another 65 gigawatts added.
Electric cars provide another pillar of Beijing’s 2060 carbon neutrality pledge. Local makers including BYD, Nio, Li Auto and Xpeng have plenty of business with the latter’s shipments nearly tripling in August. Shares of both Nio and Xpeng have doubled in the past year.
Some will quibble that the rapid growth for local electric car makers owes much to favourable policies, boosts that many technology groups did not receive. Subsidies, sales quotas and a rapid buildout of charging infrastructure have helped.
Watchdogs have not pursued antitrust crackdowns for areas such as energy and electric cars. Beijing understands the high costs of building facilities. Encouraging consumers to switch to a smaller ecommerce app looks a simpler prospect than giving incentives to solar panel, chips and battery makers to build new plants. A global shortage of everything from chips to solar panel raw materials means it needs all the local capacity it can get.
No doubt investors must tread carefully in the Chinese markets. Yet following the Beijing lead on industrial strategy still makes for safe bets.
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