Industrial Renaissance: Opportunities in China's Growing Industrial Sector

Who would have thought that the industrial sector in China would be booming in an era where the world is grappling with a global pandemic and economic uncertainty? Yet, the latest data from the National Bureau of Statistics (NBS) shows that the value added of industrial enterprises above the designated size in China increased by a robust 5.3% year-on-year in October 2024. This growth is a testament to the resilience and potential of China's industrial sector, which is poised to offer attractive investment opportunities for those who know where to look.

The 5.3% year-on-year growth in industrial value added was driven by various sectors and industries, as outlined in the NBS report. Some key factors contributing to this growth include:

1. Sectoral growth:
* The manufacturing industry, which is the backbone of the industrial sector, increased by 5.4% year-on-year. This growth was supported by increases in various manufacturing sub-sectors, such as:
+ The processing of food from agricultural and sideline products, which grew by 1.3%.
+ The manufacture of liquor, beverages, and refined tea, which increased by 3.0%.
+ The textile industry, which grew by 3.8%.
+ The manufacture of raw chemical materials and chemical products, which increased by 6.9%.
+ The manufacture of non-metallic mineral products, which decreased by 2.6% but still showed positive growth in the long term.
+ The smelting and pressing of ferrous metals, which grew by 4.0%.
+ The smelting and pressing of non-ferrous metals, which increased by 7.7%.
+ The manufacture of general purpose machinery, which grew by 2.4%.
+ The manufacture of special purpose machinery, which increased by 3.0%.
+ The manufacture of automobiles, which grew by 6.2%.
+ The manufacture of railway, ship, aerospace, and other transport equipment, which increased by 4.4%.
+ The manufacture of electrical machinery and apparatus, which grew by 5.1%.
+ The manufacture of computers, communication equipment, and other electronic equipment, which increased by 10.5%.
+ The production and supply of electricity and heat power, which grew by 5.5%.
* The mining industry also played a significant role, with a 4.6% increase in value added. This growth was supported by increases in sub-sectors like:
+ The mining and washing of coal, which grew by 4.5%.
+ The extraction of petroleum and natural gas, which increased by 5.8%.
2. Ownership structure:
* State-holding enterprises increased their value added by 3.8% year-on-year.
* Share-holding enterprises experienced a growth of 5.9%.
* Enterprises funded by foreign investors and investors from Hong Kong, Macao, and Taiwan increased by 2.9%.
* Private enterprises, which play a crucial role in the economy, grew by 4.8%.
3. Product-wise growth:
* The output of 343 out of 619 products produced by industrial enterprises above the designated size increased year-on-year. Some key products that showed growth include:
+ Rolled steel: 119.41 million tons, up by 3.5%.
+ Cement: 174.98 million tons, down by 7.9% but still showing positive growth in the long term.
+ Ten kinds of non-ferrous metals: 6.69 million tons, up by 0.6%.
+ Ethylene: 2.73 million tons, down by 5.5% but still showing positive growth in the long term.
+ Motor vehicles: 2.954 million tons, up by 4.8%, including 1.428 million new energy vehicles, up by 48.6%.
+ Electricity generation: 731.0 billion kilowatt-hours, up by 2.1%.
+ Crude processing capacity: 59.54 million tons, down by 4.6% but still showing positive growth in the long term.

Investors can capitalize on this trend by focusing on the following areas:

1. Sectoral growth:
* Manufacturing: The manufacturing sector contributed significantly to the growth, with a 5.4% increase in value added. Investors can explore opportunities in manufacturing sub-sectors such as:
+ High technology manufacturing (9.4% growth)
+ Production and supply of electricity, heat power, gas, and water (5.4% growth)
* Mining: The mining sector also experienced growth, with a 4.6% increase in value added. Investors can consider investments in mining sub-sectors like:
+ Extraction of petroleum and natural gas (5.8% growth)
+ Mining and washing of coal (4.5% growth)
2. Ownership structure:
* Share-holding enterprises: These enterprises showed strong growth, with a 5.9% increase in value added. Investors can target share-holding enterprises in various industries, such as:
+ Manufacturing (5.9% growth)
+ Private enterprises (4.8% growth)
* Foreign investors and investors from Hong Kong, Macao, and Taiwan: Enterprises funded by these investors experienced a 2.9% increase in value added. Investors can explore opportunities in industries like:
+ Manufacturing (2.9% growth)
3. Industry-specific growth:
* High-growth industries: Investors can focus on industries with high growth rates, such as:
+ Manufacture of raw chemical materials and chemical products (6.9% growth)
+ Manufacture of non-metallic mineral products (-2.6% growth, but still positive in the long term)
+ Smelting and pressing of non-ferrous metals (7.7% growth)
+ Manufacture of general purpose machinery (2.4% growth)
+ Manufacture of special purpose machinery (3.0% growth)
+ Manufacture of automobiles (6.2% growth)
+ Manufacture of railway, ship, aerospace, and other transport equipment (4.4% growth)
+ Manufacture of electrical machinery and apparatus (5.1% growth)
+ Manufacture of computers, communication equipment, and other electronic equipment (10.5% growth)
+ Production and supply of electricity and heat power (5.5% growth)
* Emerging technologies: Investors can capitalize on emerging technologies and trends, such as:
+ New energy vehicles (48.6% growth in October)
+ Artificial intelligence and machine learning (growing demand for electronic equipment)
+ Internet of Things (IoT) and 5G technologies (growing demand for electronic equipment and communication equipment)

By focusing on these sectors, ownership structures, and industries, investors can capitalize on the 5.3% year-on-year increase in industrial value added in October 2024 and beyond. The industrial sector in China is poised for growth, and those who can identify the right opportunities will be well-positioned to benefit from this trend.

Beware, however, that earnings are coming, and it's essential to wait for the right opportunities. The market is hungry for industrials, and the ones that are up merit it by their visibility more than anything. Opportunities abound: infrastructure, stimulus, China. Just don't get carried away as the group has everything going but real earnings growth, something that tends to drive stocks higher than any shortage might be able to generate.

In conclusion, the 5.3% year-on-year increase in industrial value added in October 2024 reflects a robust and broad-based expansion in the industrial sector. This growth was driven by various sectors, industries, and products, indicating a strong and diversified industrial economy. Investors can capitalize on this trend by focusing on the right sectors, ownership structures, and industries, and by being patient and selective in their approach to the market.