How to benefit from China's plan to become a financial superpower?

Touzibozhu
China H-Shares China Stocks Dividend Investing Dividend Stocks

Earlier this year, President Xi Jinping outlined the plan to transform China into a "financial superpower" that is based on strong economic principles and different from Western models.

In response to this transformation roadmap, the State Council released policy guidelines that promise to promote the high-quality development of China’s capital market by pushing for strong supervision, increased transparency, and improved risk management in the Chinese stock market. The document spells out nine guidelines that set out a framework to develop the market, including better mechanisms for protecting investors' interests and improving the quality of listed companies over the next five years. The guidelines complement recent measures by the China Securities Regulatory Commission (CSRC) to crack down on fraudulent listings, raise the threshold for new listings, and require publicly traded companies to return more to investors through buy-backs and dividend payouts.

The policy push for improving shareholder returns through increased dividend payouts and stock buybacks is sending out very positive signals to the investment community. In a recent research report, Goldman Sachs recommends investing in Chinese stocks that pay good dividends due to record cash piles held by listed companies and the State Council's nine guidelines that, amongst their other objectives, promise better shareholder returns and continued reforms of state-owned enterprises, or SOEs.

The report also stated that publicly listed Chinese companies generated a record 2.6 trillion yuan in free cash flows last year and accumulated 18 trillion yuan in cash reserves. Furthermore, the strategy of investing in good dividend-paying stocks has been successful, with the CSI Dividend Index outperforming the benchmark CSI 300 Index since 2021.

Goldman Sachs has published a model portfolio of 40 companies based on the theme of shareholder value, which includes the following stocks:

  • Kweichow Moutai
  • China Yangtze Power
  • Industrial and Commercial Bank of China
  • Bank of China
  • China Merchant Bank
  • PICC P&C
  • Tencent
  • JD-SW
  • BYD Company
  • Yum China
  • ZTO Express-W
  • TongChengTravel

On a personal level, I have been investing in Chinese state-owned telecommunication giants and large state-owned banks since 2021, and I can personally attest to the lucrative returns of such a strategy. With the renewed policy push towards shareholder value and continued reforms of China's state-owned enterprises, I can confidently look forward to many more years of positive returns from these stocks.