NPC’s Government Work Report Reviewed – Consumption, Consumption, Consumption & AI

At the National People’s Congress (NPC), Premier Li provided the government work report. The lack of Western media coverage is interesting, so I pulled out the choice lines. Consumption comes up a lot, indicating where policy support is headed. Artificial Intelligence (AI) was also explicitly mentioned. Real estate was not as big of a focus, though a large part of the bond issuance is linked to real estate support as local governments have been given more latitude to support project completion.

Jonathan Krane’s thesis in creating our firm was to align China investment products with government policy. We are looking good in 2025 as this top-down consumption directive is implemented by government agencies and local governments. Numerically, the report was largely in line with expectations that were low to begin with, though the verbal was stronger than anticipated. It is important that the government recognizes deflation because ignoring it means not fixing it. They did not ignore it. Tomorrow, the heads of the China Securities Regulatory Commission (CSRC), PBOC, and Ministry of Finance are hosting a press conference at 10 am Beijing time. Further articulation of consumption policies would be interesting.

Key Phrases From The Government Work Report:

“Implement more proactive fiscal policies.”
“Implement a moderately loose monetary policy.”
“Promote the healthy development of the real estate market and the stock market with greater strength.”
“Focus of economic policies will shift more to benefiting the people and promoting consumption.”
“Boosting the smooth circulation of the economy with consumption, leading to the upgrading of the industry with consumption upgrading.”
“Strengthen consumption incentives.”

Policy & Targets

GDP growth target of 5% – in line with expectations.
CPI around 2% – beats expectations as government officials acknowledge the deflationary feedback loop.
Official/central budget deficit “around 4%” – in line with expectations, though is historically high.
Central budget deficit RMB 5.66 trillion, an increase of RMB 1.6 trillion versus 2024, which is a touch light.
RMB 500 billion capital injection for banks, in line with expectations.
RMB 4.4 trillion in special government bonds versus RMB 3.9 trillion last year obviously is an increase of RMB 500 billion.
RMB 1.3 trillion ultra-long term bond issuance, below/light based on expectations.
Total debt increase of RMB 11.86 trillion, an increase of RMB 2.9 trillion versus 2024, in line/maybe a touch light.
Boost consumption: Arrange CNY 300 billion of ultra-long-term special government bonds to support the exchange of old consumer goods for new ones, in line with expectations.
On the Digital Economy: “Continue to promote the “Artificial Intelligence Plus” action and “Support the wide application of large models.”
On the Private Economy: “Encourage private enterprises with conditions to establish and improve the modern enterprise system with Chinese characteristics.”
Social Security pension increased by CNY 20, and Healthcare insurance and services subsidy increased by CNY 20 and CNY 5.

Full Truck Alliance Q4 Earnings Results Overview

China’s Uber for truck drivers company Full Truck Alliance (YMM US) announced Q4 results after the Hong Kong close/pre-US market opened.

Revenue increased by +31.8% to RMB 3.174 billion ($434.9 million) versus expectations of RMB 2.985 and Q4 2023’s RMB 2.4 billion
Adjusted net income increased +43.7% to RMB 4.020 billion versus expectations of RMB 1.044 billion and Q4 2023’s RMB 728 million
Adjusted EPS RMB 0.99 ($0.14) versus expectations of RMB 0.95 and Q4 2023’s RMB 0.69
RMB 29.2 billion ($4 billion) of cash versus yesterday’s market cap of $12.2 billion
Q1 revenues forecast between RMB 2.63 billion and RMB 2.68 billion for the first quarter of 2025 versus expectations of RMB 2.6 billion, representing a year-over-year growth rate of approximately 15.9% to 18.1%.

Key News

Asian equities were higher overnight, led by Hong Kong, Thailand, and Indonesia, while Vietnam was off as Trump’s cabinet tried to talk up markets on tariff deals after the close as the US dollar weakened. However, it is important to remember that Trump’s cabinet is made up of staff and not stakeholders, as only the big guy counts.

Hong Kong had a strong day, though volumes were a touch light, and advancers trounced decliners, led by Hong Kong’s most heavily traded stocks by value, including Xiaomi, up +7.22%, Tencent, up +2.95%, Alibaba, up +1.64%, Meituan, up +6.39%, and Semiconductor Manufacturing International (SMIC), up +6.6%. The NPC’s government work report contributed to Hong Kong-listed growth stocks’ strong outperformance, though it was a broad rally.

Superman was flying as CK Hutchison (Hong Kong ticker 1, how cool is that!) gained +21.86% after selling their Panama ports to BlackRock (founder Li Ka-Shing is known as Superman for his business acumen).

Mainland investors bought a net $1.08 billion worth of Hong Kong-listed stocks and ETFs, including Alibaba, which was a large net buy via Southbound Stock Connect. Mainland China had a good, but not great, day as technology and growth stocks also outperformed, though decliners outpaced advancers. Remember, stocks are reflective of consumer confidence. Real estate stocks were a rare underperformer in both markets, though remember there are very few stocks left in MSCI indices, which is why we’ve favored the bonds over the stocks. It is interesting that CATL fell by -0.76% as electric vehicles weren’t highly noted.

The Hang Seng and Hang Seng Tech gained +2.84% and +4.02%, respectively, on volume down -4.02% from yesterday, which is 167% of the 1-year average. 428 stocks advanced, while 65 declined. Main Board short turnover decreased by -12.87% from yesterday, which is 169% of the 1-year average, as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and small capitalization stocks outperformed the value factor and large capitalization stocks. The top-performing sectors were Information Technology, up +6.23%; Materials, up +3.92%; and Communication Services, up +2.99%. Meanwhile, the worst-performing sector was Real Estate, which fell -0.30%. The top-performing subsectors were industry conglomerates, semiconductors, and construction materials. Meanwhile, household appliances were the worst-performing subsector. Southbound Stock Connect volumes were light of late as Mainland investors bought a net $1.076 billion worth of Hong Kong-listed stocks and ETFs, led by Alibaba, a large net buy; Tencent, a moderate net buy; Xiaomi, Ubtech Robotics, and Hua Hong Semiconductors, which were small net buys; SMIC and Meituan were small net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.53%, +0.41%, and +0.29%, respectively, on volume up +4.12% from yesterday, which is 129% of the 1-year average. 2,180 stocks advanced, while 2,798 declined. The value factor and large capitalization stocks outperformed the growth factor and small capitalization stocks. The top-performing sectors were Communication Services, up +1.40%, Financials, up +1.31%, and Consumer Discretionary, up +1.09%. Meanwhile, the worst-performing sectors were Real Estate, which fell -1.07%, Health Care, which fell -0.52%, and Consumer Staples, which did an inverse James Bond to close down by -0.07%. The top-performing subsectors were construction machinery, internet, and telecommunication, while leisure products, petrochemicals, and real estate were the worst. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index rose versus the US dollar. The Treasury bond curve steepened. Copper and steel fell.

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