China’s local firms to benefit from drive towards self-sufficiency

Oksana Patron

12 April 2023

Software, healthcare and consumer are among sectors which will benefit the most from Beijing’s drive towards self-sufficiency ensuring that products are made or innovated in China, according to Ninety One.

As new Premier Li Qiang sought to reassure the country’s private sector and outlined policy prioritising domestic growth and high quality development, the focus on science, healthcare and technology looked especially encouraging from an investment perspective.

Ninety One’s Asia Franchise portfolio manager, Charlie Dutton and analyst Mendy Zhang, believed the trend towards localization-prioritising domestic champions over foreign alternatives will benefit several leading companies from across these three sectors.

“At a time when relations with the US are expected to remain fraught for the long term, we believe it would be prudent to invest in pockets of the market likely to benefit from policy tailwinds,” they said in a note.

The example of this trend was China’s version of Microsoft, Kingsoft, which had a compelling growth runway as the government shifted users onto the company’s software and away from early versions of Micosoft’s platform.

Ninety One stated the same rationale applied to the healthcare sector, with Beijing striving to become more self-sufficient in cutting edge technology such as medical devices, and this was expected to help from a national security perspective should the US ever consider export bans on medical devices.

“Medical device producer Mindray is the dominant leader with best-in-class products, technology, reputation and cost control, so it has an almost impregnable position in a structurally growing market fully backed by the government,” the analysts added.

In the consumer space, staples such as Fuling Zhacai and liquor producer Kweichow Moutai were in positions of strength heading into a period of extended growth.

“So, while China’s trend towards localisation might intuitively sound introverted, we believe the opposite could be true.

“An uplift in local expertise could help the country further entrench its position as an indispensable link in the global economy, with several quality sectors being notable beneficiaries.”