State Council issues policies to form a Rmb4.5tn market
Comment of the Day

August 13 2013

Commentary by Eoin Treacy

State Council issues policies to form a Rmb4.5tn market

Thanks to a subscriber for this interesting report by Michael Tong and Jun Ma for Deutsche Banks which may be of interest to subscribers. The full report is posted in the Subscriber's Area but here is a section
On 11 August, China's State Council published a detailed set of guidelines to boost the environmental protection and energy conservation industries and ncrease their domestic demand and improve their economic structure. The State Council aims to raise the total output value of the environmental protection industries to Rmb4.5 trillion (USD730 billion), or a CAGR of 15%, by 2015 to form a new pillar industry for Chinese economic growth. In this note, we provide a summary of this newly announced policy document and a list of the major players which may benefit from increasing investment and expanding market demand as a consequence of strong government support.

Guiding principles
The faster development of the energy conservation and environmental protection industries should 1) stimulate potential market demand to form a new economic growth driver, 2) expand domestic consumption, stabilize growth, and optimize the economic structure, 3) improve the environmental quality of certain livelihoods and accelerate ecological development.

A Rmb4.5 trillion market by 2015
By spurring technological innovation and expanding demand for green and energy-saving products and related services, the government aims to grow the energy conservation and environmental protection industries at a CAGR of 15% or above, with total industrial output value to reach Rmb4.5tn by 2015.

Key areas of environmental protection
Key areas of environmental protection: denitrification and desulphurization equipment, new water treatment technologies and equipment, integrated system solution for solid waste treatment, technologies for remediation of contaminated soil, development and application of environmental monitoring instruments.

Key areas for energy conservation
Key areas for energy conservation: high-efficiency boilers, high-efficiency electrical motors, regenerative combustion technology and equipment, new energy vehicle technologies, industrialization of semiconductor lighting technology.

Eoin Treacy's view The success of China's development plans rests on enhancing the productivity of its human capital. Improving the living conditions of its citizens through the provision of sewage, clean air and fertile land are among the administrations priorities as the economy transitions to more of a services and valued-added focus.

Of the Hong Kong listed shares mentioned in the above report, China Everbright found support in the region of the 200-day MA from June and surged to a recent high near HK$7.40. It is susceptible to mean reversion but a sustained move below the 200-day MA would be required to question the broad consistency of the overall advance. Beijing Enterprises Water Group has held a progression of higher reaction lows for the last year and broke out to new 10-year highs in July. Green Holdings exhibits an upward bias within an 18-month base. Sound Global has held a progression of higher reaction lows since October. New Environmental Energy Holdings has rallied to test the upper side of its base.

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