Sinolink: Investment clues under the "15th Five-Year Plan" recommendations

Sinolink's research report stated that the "Opinions of the Central Committee of the Communist Party of China on Formulating the 15th Five-Year Plan for National Economic and Social Development" is the top-level basis for the National Development and Reform Commission to formulate the outline of the 15th Five-Year Plan. The "Explanation" explicitly points out that "to promote high-quality development, the most important thing is to accelerate high-level self-reliance and self-strengthening in science and technology, and actively develop new productive forces" in order to modernize the industrial system and achieve technological self-reliance, which remains the core theme of the 15th Five-Year Plan period. The document especially mentions the emphasis on developing new productive forces according to local conditions to prevent blind competition, emphasizing the need for local governments to conduct work based on their own conditions, in a scientific, rational, and realistic manner, which also reflects the correct view on achievements. Sinolink's main points are as follows: The "Opinions of the Central Committee of the Communist Party of China on Formulating the 15th Five-Year Plan for National Economic and Social Development" is the top-level basis for the National Development and Reform Commission to formulate the outline of the 15th Five-Year Plan. The recently released "Explanation on the Opinions of the Central Committee of the Communist Party of China on Formulating the 15th Five-Year Plan for National Economic and Social Development" represents the top-level thinking of the highest decision-making body on the important views and major initiatives proposed in the "Opinions," and is crucial for us to study and understand the 15th Five-Year Plan. What key issues does the "Explanation" address? What aspects of interest does the 15th Five-Year Plan have on interest rates in the medium to long term? How will the implementation of the 15th Five-Year Plan affect the bond market and various industries? These questions will be answered in this article. Q: What key issues does the "Explanation" address? A: 1) Regarding the economic and social development goals during the 15th Five-Year Plan period. The "14th Five-Year Plan" did not specify a five-year economic growth target. This time, the "Explanation" proposes that an important indicator of achieving the milestone of basic realization of socialist modernization by 2035 is reaching a level of per capita GDP comparable to that of moderately developed countries, which requires maintaining an appropriate pace of economic and social development during the 15th Five-Year Plan period. The "Opinions" propose goals such as a significant increase in the consumption rate of residents and continued strengthening of the driving force of economic growth through boosting domestic demand, emphasizing the importance of expanding domestic demand, especially expanding consumer demand, as an important focus. 2) Strengthening the domestic circular economy and facilitating both domestic and international circulation. Both the "Explanation" and the "Opinions" emphasize once again the importance of "adhering to the strategic foundation of expanding domestic demand," mentioning improving the well-being of the people, promoting consumption, investing in people, and vigorously boosting consumption, aiming to break through the key points in the consumption link of the internal circulation. At the same time, the "Opinions" also require resolutely eliminating obstacles that hinder the construction of a unified national market, by starting from the market competition order and the behavior of local governments, optimizing the shortcomings in the production and circulation links, and comprehensively rectifying the phenomenon of "conglomerates." 3) Focusing on promoting high-quality development. The "Explanation" clearly points out that "the most important thing to promote high-quality development is to accelerate high-level technological self-reliance and self-strengthening, actively develop new productive forces." The modernization of the industrial system and technological self-reliance are still the core themes of the 15th Five-Year Plan period. The "Explanation" specifically mentions that the "Opinions" emphasize the development of new productive forces according to local conditions to prevent herd mentality, guiding localities to combine their own conditions and conduct work in a scientific, rational, and objective manner, which is also a manifestation of the correct view on achievements. 4) Coordinated development and security. Security is the precondition of development, and development is the guarantee of security. This statement is completely consistent with the "Explanation" of the 14th Five-Year Plan. the specific key points mentioned in the "Opinions," the focus is on improving the national security mechanism and strengthening the fight against sanctions, interference, and "long-arm jurisdiction," which is a true reflection of the current U.S.-China competition. Another key aspect is to ensure the security of strategic channels, advance the construction of the national strategic hinterland and backup for key industries, which may involve some bilateral or multilateral cooperation and the construction of major projects, especially the significant projects in the 15th Five-Year Plan. The last point is to strengthen the construction of national security capabilities in emerging fields, mentioning networks, data, artificial intelligence, biology, ecology, nuclear, space, deep sea, polar regions, and low airspace. Q: What aspects of interest does the 15th Five-Year Plan have on interest rates in the medium to long term? A: 1) How does the "manufacturing sector's share" affect the central long-term interest rate? The report explicitly states the need to "maintain a reasonable share of the manufacturing industry," which may suggest that the importance of the industrial system is high during the 15th Five-Year Plan period. Historical data shows a positive correlation between the share of the manufacturing industry and the central long-term interest rate. This phenomenon is not only reflected in the domestic bond market but also in overseas developed and emerging economies. 2) How does the development of the technology industry affect the central long-term interest rate? The announcement sets the goal of "significantly increasing the level of technological self-reliance." The importance of technological innovation during the 15th Five-Year Plan period is undeniable. Using the "proportion of high-tech exports to the total value of manufactured goods exports" as a proxy variable for the state of the technology industry, data from China, the US, and Japan are examined. Looking at the long-term trend, there is a positive correlation between the proportion of high-tech product exports and the central long-term interest rate in various countries. The logic is that the development of the technology industry helps to increase total factor productivity, to some extent offsetting the decline of the demographic dividend, and pushing up the potential economic growth rate. 3) Implicit growth targets in the 2035 vision plan? The announcement sets the goal of "reaching a level of per capita GDP comparable to that of moderately developed countries," with a per capita GDP of $13,400 in 2024. If we assume average nominal growth rates of 5%, 5.5%, and 6% respectively until 2035, per capita GDP could reach $23,000, $24,000, and $25,000, satisfying the "level of moderately developed countries." Considering that the target growth rate during the 15th Five-Year Plan period may be slightly higher than the following five years, it can be inferred that the target growth rate for the 15th Five-Year Plan period may still be set at around 5%. Q: How will the implementation of the 15th Five-Year Plan affect the bond market and various industries? A: 1) Bond Market: In the short term, the implementation of the 15th Five-Year Plan may lead to a relatively positive reaction in risk assets, which may have a restraining effect on the bond market sentiment. The previous rebound in the bond market was based on: Expectations of redemption impact affecting trading sentiment, leading the market microstructure into a "easy to rise, difficult to fall" zone; Funds have been stable, and under stable fund conditions, the adjustment range of long-term rates has reached the upper limit of the historical experience range; Expectations of easing are gradually heating up. Currently, the headwinds in the fundamentals have increased, and as the prices of funds enter a seasonal uptrend, the rebound process may gradually come to an end. Once the market sentiment returns to a neutral range, it may be advisable to transition to a phase of defensive positioning. 2) Machinery: The "Opinions" propose forward-looking layouts for future industries and intend to promote quantum technology, bio-manufacturing, hydrogen and nuclear fusion energy, brain-machine interfaces, embodied intelligence, and sixth-generation mobile communications as new economic growth points. These two industries are expected to receive top-level policy guidance and funding support, with a positive trend in quantum computing and controllable nuclear fusion industries. 3) New Energy: The strategic tasks in the energy sector during the 15th Five-Year Plan period include "accelerating comprehensive green transformation with dual carbon goals as the traction." Measures such as the "carbon emission dual control system, carbon reduction in the industrial sector, vigorous development of green electricity, transition of coal power roles, and new power system" are specific and clear. The bank believes that the competitive landscape in the integration and transformation link during the 15th Five-Year Plan period is likely to undergo a "value reshaping"; in addition, hydrogen energy has formally entered the national future industry, establishing a clear position in the 15th Five-Year Plan, with development expected to receive systematic policy guidance at the top level, and industrialization and commercialization processes may far exceed market expectations, focusing on green hydrogen, ammonia, fuel cells, and the direction of the 15th Five-Year Plan. 4) Computer Industry: With the focus on technological self-reliance during the 15th Five-Year Plan, highlighting the grasp of the new round of technological revolution and industrial transformation, the computer sector experiences a process of downward and then upward movement, with funds initially converging towards domestic replacements/dividends in specific areas, then returning to the AI industry chain. Aside from the relatively high certainty of domestic replacements and dividends, in terms of the direction of AI implementation, there are four main aspects: the emerging hardware of AI combining software and hardware, software for the consumer market especially in overseas directions, enterprise services and manufacturing industry informationization, and large-scale deployment/private deployment/integrated machines in the government/B2B fields. 5) Real Estate: The 15th Five-Year Plan period clearly aims to promote high-quality development in the real estate sector. Unlike previous "Five-Year Plans" where real estate was implicitly discussed in the context of urban development, the formulation from the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China has fundamentally changed, integrating the systematic promotion of "high-quality development of the real estate sector" into the framework of "ensuring and improving people's well-being," reflecting both the central government's focus on the real estate sector and pointing to urban renewal and promoting the construction of "good houses" as future policy priorities. In the long term, the promotion of high-quality development in the real estate sector is expected to accelerate urban renewal and promote the construction of "good houses," benefiting companies focused on improving housing quality.