China's Five-Year Plan - Politics, Regulation and Opportunities for Investors - Artisan Partners
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China’s Five-Year Plan
Politics, Regulation and Opportunities for Investors
Tiffany Hsiao, CFA
Managing Director and Portfolio Manager
Eric Colson, CFA
Managing Director and Chief Executive Officer
This material is only intended for investors which meet qualifications as institutional investors as defined in the applicable
jurisdiction where this material is received, which includes only Professional Clients or Eligible Counterparties as defined by
the Markets in Financial Instruments Directive (MiFID) where this material is issued by APUK or AP Europe. This material is not
for use by retail investors and may not be reproduced or distributed without Artisan Partners’ permission.
For Institutional Investors Only—Not for Onward Distribution
China Is the World’s
Second-Largest Equity Market
Representing a large and liquid market, Chinese equities may help capture global growth
New York Stock Exchange Shanghai Stock Exchange
Taiwan Stock Exchange
Total Size of Select Equity
Markets Around the World
Shenzhen Stock Exchange
US $54 Trillion
Greater China $20
Japan $7 Hong Kong Stock Exchange
UK $3.7
Germany $2.9
Taiwan $2
Brazil $1
ARTISAN PARTNERS Source: FactSet. Data as of 1 September 2021
Today’s Topics
▪ What Is a Five-Year Plan?
▪ Unmet Needs in the Marketplace
▪ Sectors Driving Innovation
Q&A
▪ Commonly Asked Questions
ARTISAN PARTNERSWhat Is a Five-Year Plan?
Regulation Stems From Planning
Blueprint for Economic Growth
Active Security Selection Is Key
ARTISAN PARTNERSW H AT I S A F I V E - Y E A R P L A N ?
Regulation Stems From Planning
▪ 2049 is the 100th anniversary of People’s Republic of China
100-Year Plan ▪ Policy goals include building up national strength in science
(Long-Term Strategy) and tech
▪ Focus on innovation and small companies/new business formation
5-Year Plan
(Near-Term Tactical Steps) ▪ Promote household income growth, especially in lower tier cities
▪ Consultations with key stakeholders, as well as the broader
Annual Parliamentary parliament
Meeting ▪ Members of the National People’s Congress debate and voice
(Progress Report) opinions
ARTISAN PARTNERS Source: People’s Republic of China.W H AT I S A F I V E - Y E A R P L A N ?
Blueprint for Economic Growth
Tactical Consultative Transparent
▪ Identifies small, immediate ▪ Created in collaboration ▪ Plans are widely broadcast
steps needed to reach with key stakeholders and communicated
larger policy goals ▪ Designed to help ▪ Consistent message across
▪ Focus on near-term needs rebalance the economy the central government
and priorities toward areas of innovation
ARTISAN PARTNERSW H AT I S A F I V E - Y E A R P L A N ?
Innovation for Productivity
Building Blocks for ▪ Disrupters solving big problems
Economic Progress ▪ Entrepreneurs and private sector
are key to sustaining growth
Digitalizing the Economy
▪ Mobile internet
▪ E-commerce platforms
Modern Financial System
▪ Capital markets reform
▪ Manage risks in banks
▪ Develop real estate sector
Basic Infrastructure
▪ Highways and high-speed railroads
▪ Airports and transit hubs
▪ Sea ports
▪ Telecom infrastructure
ARTISAN PARTNERSW H AT I S A F I V E - Y E A R P L A N ?
Active Security Selection Is Key
30-Year Cumulative Total Returns
8 9 10 11 12 13
2500%
th th th th th th
2000%
Five-Year Five-Year Five-Year Five-Year Five-Year Five-Year
Plan Plan Plan Plan Plan Plan
1500%
1000%
500%
0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Shanghai Composite Index S&P 500® Index
ARTISAN PARTNERS Source: Bloomberg/Artisan Partners. Data as of 10 September 2021. Past performance does not guarantee and is not a reliable indicator of future results.W H AT I S A F I V E - Y E A R P L A N ?
Impact of Regulation
Companies with marginal impact to
social benefits tend to be disrupted
Policymakers seek to direct human and financial capital
to innovation—innovative sectors tend to benefit
China faces big challenges and may need
the private sector to help solve them
ARTISAN PARTNERSU N M E T N E E D S I N C H I N A’ S M A R K E T P L A C E
3 Tectonic Shifts
Aging Population
Growing Health Care Demands
Drive for Tech Independence
ARTISAN PARTNERSU N M E T N E E D S I N C H I N A’ S M A R K E T P L A C E
Massive Drop in Workforce
China’s total population is projected to fall by roughly half by end of the century
Projected Population Decline in China
1.6
1.4
1.2
1.0
Billions
0.8
0.6
0.4
0.2
0.0
2021 2031 2041 2051 2061 2071 2081 2091
ARTISAN PARTNERS Source: The Lancet Medical Journal. Data published in July 2020.U N M E T N E E D S I N C H I N A’ S M A R K E T P L A C E
4.5 Million New Cancer Patients
in China Each Year
China needs affordable, scalable health care solutions
Total Annual New Cancer Cases
5.0
4.0
3.0
Millions
2.0
1.0
0.0
China Europe North America
ARTISAN PARTNERS Source: World Health Organization. Data published in 2020.U N M E T N E E D S I N C H I N A’ S M A R K E T P L A C E
$378 Billion USD of Semiconductors
Imported Annually
China imports its key technology
▪ All advanced semiconductor manufacturing (below 10 nanometers)
is located outside of China
▪ 92% of advanced manufacturing is in Taiwan
▪ The remaining 8% is in South Korea
ARTISAN PARTNERS Source: Semiconductor Industry Association. Data as of 2021.I D E N T I F Y I N D U S T R I E S A N D S E C T O R S D R I V I N G I N N O VAT I O N
Investment Themes
Millennial Consumers
Innovative Health Care Solutions
Opportunities for Tech Leapfrogging
ARTISAN PARTNERSI D E N T I F Y I N D U S T R I E S A N D S E C T O R S D R I V I N G I N N O VAT I O N
Millennial Consumers
▪ Millennials are the driving force for spending
Consumer Brands ▪ Younger consumers have reshaped preferences
▪ Local brands projected to win greater market share
▪ Labor productivity improvements
Automation and Robotics ▪ Robotics for both home and business
▪ Warehouse and industrial automation
▪ Emphasis on experiences over physical goods
Services and Conveniences ▪ Home delivery and lifestyle improvements
▪ Omnichannel retail, merging online with brick and mortar
ARTISAN PARTNERSI D E N T I F Y I N D U S T R I E S A N D S E C T O R S D R I V I N G I N N O VAT I O N
Innovative Health Care Solutions
Next Generation Robot-Assisted Medical Supplies
Therapies Medical Procedures and Devices
▪ Oncology ▪ Joint replacement ▪ Continuous glucose
▪ Heart disease ▪ General surgery monitors
▪ Metabolic diseases ▪ Telemedicine and ▪ Orthodontics
remote surgeries ▪ Neurological and
cardiovascular implants
ARTISAN PARTNERSI D E N T I F Y I N D U S T R I E S A N D S E C T O R S D R I V I N G I N N O VAT I O N
Opportunities for Tech Leapfrogging
▪ Semiconductors power digital infrastructure
Semiconductors ▪ Next generation materials may leapfrog silicon
▪ Very long supply chains, multiplying growth opportunities
▪ China needs local software providers to meet local needs
Software and Hardware ▪ Lack of legacy software, can go straight to cloud
▪ Hardware completes the virtuous cycle
▪ China aims to be carbon neutral by 20601
Clean Energy ▪ Gas powered new cars banned starting in 20352
▪ China’s electric vehicle penetration is only 15%3
ARTISAN PARTNERS Sources: 1ClimateAction.org. 2China’s Technical Roadmap 2.0. 3Wall Street Journal, July 2021.Key Takeaways
Five-year plans focus on practical challenges
Active management can help assess and mitigate regulatory risk
while identifying new growth areas
Focus on disruptors, rather than incumbents
ARTISAN PARTNERSNotes and Disclosures This section of this presentation contains information important to a complete understanding of the material presented. Please review it carefully. Artisan Partners Limited Partnership (APLP) is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Artisan Partners UK LLP (APUK) is authorized and regulated by the Financial Conduct Authority and is a registered investment adviser with the SEC. APEL Financial Distribution Services Limited (AP Europe) is authorized and regulated by the Central Bank of Ireland. APLP, APUK and AP Europe are collectively, with their parent company and affiliates, referred to as Artisan Partners herein. Form ADV: Additional information about APLP or APUK, the firms, its partners, ownership, investment strategies, fees and expenses and policies is contained in each firm’s respective Form ADV. Each firm will supply a copy of its Form ADV upon request. Artisan China Post-Venture Strategy Investment Risks: Current and future portfolio holdings are subject to risk. International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small- and medium-sized companies tend to have a shorter history of operations, be more volatile and less liquid and may have underperformed securities of large companies during some periods. Growth securities may underperform other asset types during a given period. A portfolio focused on greater China will be closely tied to market, currency, economic, political, environmental, or regulatory conditions and developments in the region, and may fluctuate more than the returns of a more geographically diversified portfolio. Investments will rise and fall with market fluctuations and investor capital is at risk. Unless otherwise indicated, the information contained in this material is current as of the date indicated on its cover. Such information is believed to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty is made, expressed or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of the information and opinions contained herein. Additionally, there is no obligation to update, modify or amend this material or to otherwise notify a reader in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100. 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Notes and Disclosures This material is only intended for investors which meet qualifications as institutional investors as defined in the applicable jurisdiction where this material is received, which includes only Professional Clients or Eligible Counterparties as defined by the Markets in Financial Instruments Directive (MiFID) where this material is issued by APUK or AP Europe. This material is not for use by retail investors and may not be reproduced or distributed without Artisan Partners’ permission. In the United Kingdom, issued by APUK, 25 St. James’s St., Floor 3, London SW1A 1HA, registered in England and Wales (LLP No. OC351201). Registered office: Reading Bridge House, Floor 4, George St., Reading, Berkshire RG1 8LS. In Ireland, issued by AP Europe, Fitzwilliam Hall, Fitzwilliam Pl, Ste. 202, Dublin 2, D02 T292. Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296 (Company No. 637966). Australia: This material is directed at wholesale clients only and is not intended for, or to be relied upon by, private individuals or retail investors. Artisan Partners Australia Pty Ltd is a representative of APLP (ARBN 153 777 292) and APUK (ARBN 603 522 649). APLP and APUK are respectively regulated under US and UK laws which differ from Australian laws and are exempt from the requirement to hold an Australian financial services license under the Australian Corporations Act 2001 in respect to financial services provided in Australia. Canada: This material is distributed in Canada by APLP and/or Artisan Partners Distributors LLC, which conduct activities in Canada under exemptions from the dealer, portfolio manager and investment fund manager registration requirements of applicable Canadian securities laws. This material does not constitute an offer of services in circumstances where such exemptions are not available. APLP advisory services are available only to investors that qualify as “permitted clients” under applicable Canadian securities laws. © 2021 Artisan Partners. All rights reserved. For Institutional Investors Only—Not for Onward Distribution ARTISAN PARTNERS
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