Investment Strategy:“Beautiful China”and Better Quality of Life

Investment Strategy: Understanding “better quality of life” and “Beautiful China”

    According to the report on the recently closed 19th CPC national congress, the dominantissue underlying China’s development has now evolved into “a conflict between people’sneed of better quality of life and unbalanced & inadequate development”. The pursuit ofbetter quality of life is manifested as ongoing consumption upgrade across variousaspects of life. In addition, it is also stated in the party congress report that thedevelopment of “ecological civilization” is crucial to the country’s sustainabledevelopment. In fact, developing a “Beautiful China” has become an important aspect ofthe various demands encompassed by the pursuit of better quality of life.Please see text for our take on each major sector.

    Environmental: Industrial pollution treatment and environmental PPPs key to watch amid“ecological civilization” development

    Construction: “Beautiful China” and restrictions on central SOE PPP participation LTpositives for landscaping PPP players

    Power Equipment/New Energy: Sector to benefit from Beautiful China strategy; windand solar preferred

    Building Materials: Positive prospects for decoration materials industry driven bystrengthening environmental regulation and consumption upgrade

    Agriculture: Urgency to improve output quality; accelerating development of large-scalefarming

    F&B: Subsector competitive landscape key factor to consider in mature stage of growthHome Appliances: AC, small and kitchen appliances showing strongest growth potentialamid consumption upgrade

    Light Industry: Rising penetration of customized furniture to meet consumers’personalized demand for better quality of life

    Media: Paid digital content market growing on consumption upgrade; national advertiserspenetrating lower-tier markets

    Non-Bank Financials: Insurers remain promising for investment; policy support for directfinancing to benefit PE and investment banking

    Transportation: Airport slot restrictions to reshape sector supply-demand balance* Please see a list of sector stock picks at the end of the report.

    Key risks include changes in the economic environment, weaker-than-expected policyexecution, worse-than-expected industry business conditions, and lower-than-expectedcorporate earnings.