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Clear economic outlook boosts listed firms' investment

By Chang Yanjun (China Economic Net)

15:23, January 16, 2013

As the macro economy is stabilizing and recovering, public companies are taking more proactive actions. On December 14, Renhe Pharmacy announced that its wholly-owned subsidiaries are planning to expand production capacity; on December 18, Yili announced its plans to build infant formula milk powder project in New Zealand; on the same day, many public companies, including NBTM, Taiji Industry, Xi'an Catering, Hualian, and Nanning Sugar Industry also made investment announcements; on December 19, Yilida made an merger announcement, intending to extend its industrial chain.

Besides, on December 12, many public companies announced their success in land bidding or their intentions to take part in land bidding. For example, CMST announced that it had won the bidding for the commercial multi-purpose land in the Xiaguan District of Nanjing for RMB 910 million Yuan; Foshan Electrical and Lighting announced that it would take part in the bidding for the use right of a piece of land in the Gaoming District of Foshan, with the purpose of increasing the company's reserve of operation-purpose land. Some public real estate companies have been very active, too. On December 12, TANDE announced that its subsidiary had won the bidding for the right to use a certain piece of land in Suzhou, Jiangsu province; from December 12 to 18, China Fortune Land Development made several announcements about the winning of bidding for lands by its subsidiaries. Most of these are lands for commercial housing, and others are for industrial use and commercial facilities.

Production expansion, land purchase, and new projects, what do all these action of public companies signify? Gui Haoming, chief analyst of Shenyin Wangguo Securities' research institute, believes that because they have clear expectation for economic growth in next year, public companies become very active in their investment. "For public companies, they have investment plans in their end-of-year conference. It is also possible that some investments have been put aside for various reasons before, and these are released collectively at the end of the year, which is normal".

In the view of Qi Dapeng, deputy general manager of the Shenyang Division of Xiangcai Securities, public companies' buying land and expanding production are their responses when economic development policies become clear.

According to statistics, affected by export slowdown, housing market adjustment, and other factors, the growth of China's industrial output has slowed down since the beginning of 2012; above-scale industrial added value fell from 11.6 percent in the first quarter to 8.9 percent in August. However, industrial production output began to accelerate since September; in October, above-scale industrial added value increased by 9.6 percent year on year, 0.4 percentage points higher than that of the previous month.

"In terms of structure, the added value of heavy industry and light industry in October was 0.4 percentage points and 0.1 percentage point higher than that in September. The growth rate of heavy industry overtook light industry, another proof that economic prosperity is recovering", said Cao Yuanzheng, chief economist of Bank of China, "Based on past experience, the period of time of active inventory removal is generally 6 to 9 months. This round of active inventory removal was started since October, 2011, having lasting for 10 months now. It is a sign that the active inventory removal period is about to come to an end".

Some other statistics show that PMI (Purchase Management Index) in November was 50.6 percent, 0.4 percentage points higher than that of the previous month, continuing to rise after it went over 50 percent, the grow-wither line, once again in October. Taking the index separately, the production index that represents total supply was 52.5, 0.4 percentage points higher than October; new orders index and new export order index that represent total demand was 51.2 percent and 50.2 percent respectively, both significantly higher than that of the previous month, indicating improvement in enterprises' demand.

"Public companies' actions show that they have optimistic expectation for the future and regard the investment environment favorably, that's why they are willing to make investment, because without investment it's difficult to produce satisfying results. Although not every investment will succeed, I hope public companies can make good use of their capital", said Gui Haoming.

According to Cao Yuanzheng, the implementation of the "double income plan" proposed in the 18th CPC National Congress and the continuous expansion of consumption will gradually transform China's economic growth model from being investment-and-export-driven to consumption-driven; the consumption sector, including culture, tourism, electronics, automobile, and medical care, will become the fastest growing sector of China's economic growth in the future.

"Performance of public companies depends on the performance of the macro economy". In Gui Haoming's view, the macro economy will hit the bottom and go back up in the first quarter of next year.

Meanwhile, an analyst from the Financial Securities Institute of Golden Sun Securities believes that it requires some time for the stabilizing and recovering of the macro economy to translate into performance of public companies. For industries that have excessive production capacity, there is not only the inventory removal period, but also the production capacity removal period. It will take a long time. However, it will be easier for some defensive industries. Qi Dapeng also believes that the performance of some industries will be better at certain period of time, somewhat seasonal. "Generally, it will take some more time for public companies to walk out of slump slowly".


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