Citi Research has analysed China’s 2025 Government Work Report (GWR), presented by Premier Li Qiang at the National People’s Congress (NPC) on 5th March, highlighting ten key work tasks and their potential implications for equity strategy.
The report outlines the government’s priorities and targets for the coming year, offering valuable insights for investors in the Chinese markets.
Key Government Work Tasks and Equity Implications:
- Boosting Domestic Consumption: This has been elevated to the No.1 work task, moving up from No.3 last year – Citi Research views this as a logical step given that consumption is the largest contributor to GDP growth, and exports are facing increased uncertainty due to potential tariff increases.
- Technology Development: Remaining a crucial focus, technology development is linked to the No.2 and No.3 work tasks – China aims to increase the core output of the digital economy to approximately 10% of GDP, underscoring the significance of technology-related sectors. The recent meeting between President Xi Jinping and key figures from private internet, technology, and electric vehicle companies further reinforces the government’s supportive stance towards private enterprises in these areas.
- Supply-Side Reform: A new addition as the No.4 work task, supply-side reform is primarily focused on reform, including State-Owned Enterprise (SOE) reform, and addressing “rate race competition” – The report acknowledges the increasing overcapacity in sectors like solar and basic materials, driven by factors such as slower demand, a high prior-year base, more trade barriers, and changes in the economic mix.
Economic and Financial Targets for 2025:
The GWR also sets out ten economic and financial targets for 2025:
- Five targets remain similar to the previous year.
- Four targets are more ambitious: these relate to food production, energy consumption cut per unit of GDP output, the deficit to GDP ratio, and special purpose bond issuance. Citi noted that this suggests a move towards more proactive monetary and fiscal policies to support sustained economic growth and social stability.
- One target, the Consumer Price Index (CPI), is lower compared to 2024.
Actionable Ideas for Equity Strategy:
Citi Research highlights that valuations of China’s alternatives to the US’s magnificent-seven stocks appear inexpensive, trading at a significant discount on Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios despite offering a substantially higher yield.
Furthermore, the earnings per share (EPS) growth outlook for this group for 2025-26E shows relatively low variance. Overall, HK’s/PRC’s major indexes are considered not expensive when compared to their historical averages.
In light of these factors, Citi Research added Anta to their H-share Top Buys list and remained overweight on internet, technology, and transportation (tourism-related) sectors for profit growth.
