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How to Make Money Out of China's National People's Congress

China’s biggest political event of the year is a key opportunity to gather valuable trading intelligence about it.

How to Make Money Out of China's National People's Congress
People walk through Tiananmen Square in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

(Bloomberg) -- China’s biggest political event of the year is a key opportunity to gather valuable trading intelligence about the world’s second-largest economy.

The National People’s Congress brings almost 3,000 delegates from all over China -- including some of the country’s richest and most influential businesspeople -- to Beijing each year to discuss policy and the way forward.

Everything from how to crush China’s towering debt pile to curbs on the property market and gambling policy may get an airing at the various “sessions” that are held over the next fortnight. This year’s event is made all the more potent by President Xi Jinping’s push to solidify his position at a level alongside past leaders Mao Zedong and Deng Xiaoping.

Here are some themes taking center stage, and how you can trade them:

The Debt Crackdown

The push to stem credit growth and rein in financial risk will be a key topic during the summit.

Any new measures mooted on this front could exert pressure on the bond market long term, says Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. Winners from further crackdown moves would be large banks and insurers as reform improves their asset quality, according to Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.

How to Make Money Out of China's National People's Congress

Deleveraging also serves China’s push toward higher-quality rather than faster economic growth. Industries like advanced manufacturing, technology, big data and artificial intelligence are key to this, say analysts at SWS Research Co. in Shanghai.

Greening China

Xi’s address to the twice-a-decade Communist Party congress in October was heavy on the environmental rhetoric, triggering a rally in green stocks. A push to switch millions of households in northern China from coal to gas heating this winter didn’t go smoothly, but did result in reduced air pollution in places like Beijing.

Green themes are likely to come up at the NPC too, with new policies potentially benefiting businesses in new energy and manufacturers of environmental-protection machinery, according to Pacific Securities Co. Likewise, so-called old economy stocks in the steel, coal and energy industries could take a hit.

How to Make Money Out of China's National People's Congress

Dozens of energy sector chieftains attend the NPC, including the chairmen of China National Petroleum Co. and Sinochem Group and the general manager of China Energy Investment Corp. -- now the world’s biggest power company -- as well as a slew of renewable energy company bosses.  

China is pushing hard to become the Detroit of electric cars, with the government targeting 7 million EVs by 2025. Shares of the major domestic manufacturers -- SAIC Motor Corp., Great Wall Motor Co., Geely Automobile Holdings Ltd. and the Warren Buffett-backed BYD Co. -- would be in focus if there are any developments on this front.

The Housing Market

China has gone through sporadic bouts of tightening limits on property sales and then easing them, only exacerbating the housing-market frenzy by prompting speculators to second-guess policy changes. But a national property tax will likely be discussed this year.

If the NPC puts such a levy on its 2018 legislative agenda and the process moves quickly, it could impact market sentiment, says Wang Tao, head of China economic research at UBS Group AG in Hong Kong. BBVA’s Xia says a tax would mean large numbers of unoccupied properties would likely be sold off.

Real estate stocks have been some of the best performers among Chinese equities the past year, with developers like China Evergrande Group, Sunac China Holdings Ltd. and Country Garden Holdings Co. up at least 140 percent since last March.

Gambling, and “Reform”

Every Chinese province holds discussion sessions on issues unique to their area, but the meetings held by Hainan, an island off China’s southern coast, will hold particular allure.

The province is home to besieged conglomerate HNA Group Co. and is said to be mulling allowing online gambling, a lottery or sports betting. Casinos are banned everywhere in China but Macau, so any news on this front could impact gambling stocks in the enclave, as well as property developers, hotel companies, tourism firms and retailers.

“Reform” has been a buzzword among China’s policy elite, with Liu He, Xi’s top economic adviser, saying at Davos that China would surprise the world with its capacity for change. If the “reform concept” is pushed at the NPC, stocks related to China’s Belt and Road initiative, the development of the Shanghai Free Trade Zone, as well as Hainan could benefit, according to Zhongtai Securities Co.

“The market will be extraordinarily sensitive to policy signals,” say Credit Suisse Group AG analysts Vincent Chan and Hu Shen.

--With assistance from Aibing Guo Amanda Wang Jeanny Yu and Amy Li

To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Emma O'Brien, Will Davies

©2018 Bloomberg L.P.

With assistance from Tian Chen