Growth Dragons Weekly: China’s Big Stimulus in 2025, Selective Luxury Spending, and IPO Spotlights on Dining, Dentistry & Pharma
What’s happening in China this week:
China Gears Up for a Major Stimulus Push in 2025
Selective Luxury Spending in China: Trends Shaping Consumer Choices
Xiaocaiyuan, China’s Mid-to-High End Restaurant Giant, Eyes HK$9.1 Billion IPO Valuation
Dazhong Dental, China’s Leading Private Dental Chain, Goes Public
Cloudbreak Pharma IPO: A High-Stakes Bet in Ophthalmic Drug Development
#1 China Gears Up for a Major Stimulus Push in 2025
As 2025 approaches, the final year of China’s 14th Five-Year Plan, we anticipate a concerted effort to bolster the economy and set the stage for the next five-year plan. The Central Economic Work Conference (CEWC), held on December 11-12 outlined a significant shift in fiscal policy, signaling a willingness to increase spending amidst uncertainty. This reflects China's determination to achieve growth targets and prioritize high-quality development. The repeated reference to “组合拳” (comprehensive measures) suggests a preference for deploying large stimulus packages in a coordinated manner rather than implementing policies incrementally.
The CEWC announced a more proactive fiscal policy for 2025, marking a shift toward heightened government spending. This includes plans to raise the fiscal deficit, issue ultra-long special treasury bonds, and expand local government special-purpose bonds. These measures represent a departure from recent cautious fiscal policies and highlight the urgency of stabilizing an economy facing multiple headwinds. Additionally, the conference emphasized a "moderately loose monetary policy," a term not used since the 2008 global financial crisis, signaling the severity of the current economic challenges. This approach includes interest rate reductions and unconventional counter-cyclical adjustments to stimulate domestic consumption and investment.
To boost consumption, China is opening its economy further, exemplified by visa-free travel offers to residents of Japan and other nations—even as Japan maintains stricter requirements for Chinese visitors. These measures come as China faces falling exports amidst geopolitical tensions.
Furthermore, the longstanding cap of 3% on government fiscal deficits is expected to be eased to 3.5%-4%, releasing an estimated 5 trillion yuan into the economy. To ensure stability, Beijing remains committed to maintaining the yuan’s exchange rate at a reasonable and stable level.
Aligned with its "dual circulation" strategy, China aims to expand internal circulation by unlocking domestic demand. This involves replacing outdated infrastructure with new amenities through incentives and investing in urbanization projects across lower-tier cities. Such initiatives are poised to boost earnings for consumer staple stocks.
The government also plans to focus on high-tech industries, particularly artificial intelligence, while addressing inefficiencies such as intense price wars that waste resources. This shift suggests an improved business environment and potential turnarounds for industrial stocks. Additionally, a wave of mergers and acquisitions (M&A) is expected under the Shanghai Action Plan for Supporting M&A of Listed Companies (2025-2027). The plan aims to establish 10 internationally competitive companies in sectors like integrated circuits, biopharmaceuticals, and new materials, supported by a 3 trillion yuan M&A scale and 100 billion yuan funds for each sector.
Finally, China’s government bonds, with yields at an all-time low of 1.8%, are heavily oversubscribed. This has increased the equity risk premium for Chinese stocks, making them increasingly attractive. The opportunity cost of holding government bonds is rising, and a shift toward equities is likely, especially with the growing popularity of passive investment options like CSI A500 ETFs.