Technology, Domestic Demand, Going Global: Three Key Asset Allocation Themes for the Next Five Years
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The following is the full transcript of WallstreetCN's January 8 interview with Dr. Xiong Yuan, chief economist at Guosheng Securities:
Starting from China’s accession to the WTO in 2000, it has been 25 years. How do you understand the logic behind the changes in China’s policy framework over these 25 years? Especially at this key historical turning point, how should we understand the path and logic of future policy?
Xiong Yuan: This is a very grand topic. Whether we look back 20 years, 50 years, or even longer, discussing the "policy framework" itself is no small matter. But if I were to explain, I have a long-standing, relatively clear thread I've tracked.
Our country holds a Party Congress once every five years, with several important plenary sessions in between. This is a very importantparadigmfor understanding policy changes. If you want to know the key points behind each round of policy evolution, my suggestion is simple—start by reading the “textbooks.”
That is, at least have a basic understanding of the major Party Congress reports from the past two or three decades, such as the 19th and 20th Party Congress reports; this is the first step.
From these reports, you can actually find many key clues.
If we focus on the present, the most important are the last two Party Congresses, namely the 19th in 2017 and the 20th in 2022.
In these ten years, a very important change is that China’s internal and external environment has profoundly shifted.
Therefore, in the past seven or eight years, the country has repeatedly emphasized the need to solve the “chokepoints” and to do our own things well, including domestic circulation and expanding domestic demand. These have become very important directions for the next stage.
If we look further back, 2017 itself was a watershed. At the 19th Party Congress, China’s articulation of the “principal contradiction” underwent a fundamental change.
Before 2017, for more than thirty years starting from the 1980s, China described the contradiction as “the ever-growing material and cultural needs of the people and the backward social production,” with the core task of “growing the pie.”
At the 19th Party Congress, the principal contradiction shifted to “the people's ever-increasing desire for a better life and unbalanced and inadequate development.”
This means that since 2017, China still pursues growth, but the focus is no longer just on speed, but also efficiency and distribution.
So, since 2017, almost every major meeting and policy document revolves around one word—high-quality development. Compared to before, when governments and market participants were obsessed with “growth rate,” in the past decade, that obsession has been gradually weakened.
The core meaning of high-quality development is:
On one hand, no longer pursuing overly fast growth rates;
On the other hand, placing more emphasis on transformation and upgrading, such as higher tech content, higher green content, and greater attention to environmental protection and sustainability.
On this basis, in recent years, another important factor has appeared—the essential change in the internal and external environment, with safety becoming clearly more important, which is also key to understanding current policy logic.
If time is limited, I think grasping two points is enough:
First, have a basic awareness of the major meetings and documents every five years;
Second, extract the long-term main line behind them.
To sum up the changes over about the past fifteen years, there are really only two:
First, around 2017 was a watershed, when China shifted from “growth-centered” to focusing more on efficiency and distribution;
Second, from 2018 to the present, against the background of great-power competition, the external environment has become a new long-term constraint, with safety, institutional controllability, and solving “chokepoints” becoming the main policy threads.
Could you briefly look ahead for us — over the next five years, which industries or sectors may have greater allocation and growth potential?
Xiong Yuan: This is a rather big question; I'll briefly outline several main threads.
The first thread is high-level technological self-sufficiency and strength. If you look at the 15th Five-Year Plan, you will find that compared to the past “all-encompassing” high-quality development, this time the statement is highly focused—the core of high-quality development is to promote advanced technological self-reliance and strength.
So, in the next five years, whether you call it technology, independent controllability, or “chokepoint”-related sectors, these are undoubtedly key directions.
The second thread is domestic circulation and expanding domestic demand. This time, the overall assessment of internal and external environments remains cautious; the country still emphasizes doing its own job well, with domestic circulation as the core lever.
The most important aspect of domestic circulation is expanding domestic demand. The journal "Qiushi" also clearly states that expanding domestic demand is a strategic measure, not a temporary one.
From an allocation perspective, focusing on consumption and related transformation directions will also be key in the coming years.
The third thread is Chinese enterprises going global. A very clear change in this Five-Year Plan is the proposal to look not only at GDP but also at GNI—not only at “China’s economy” but also at “the economy of Chinese people.”
In other words, the country is encouraging companies to go out and make money globally.
Therefore, in the next few years, the industry chain around “going global” will also become an important long-term thread.
These three, I believe, are the most noteworthy directions for allocation and growth in the next five years. As for more specific sub-categories, I won’t expand here.
We’re seeing that both monetary policy and fiscal policy face significant constraints, like central leverage space, local debt issues, etc. Under such conditions, how will future fiscal and monetary policies impact major asset classes? Will they remain as sensitive and profound as before?
Xiong Yuan: Whether it’s fiscal or monetary policy, the core questions are just a few: Is there “water”? How much? At what pace? This logic itself hasn’t changed.
You can think of it as a boat traveling down a river; when there’s more water, the boat rises naturally; when there’s less water, the boat easily runs aground; when the flow is fast, the boat also moves faster. So, at every stage, monetary and fiscal policy always affect market liquidity.
Therefore, understanding monetary and fiscal policy is a must for macro research, especially in capital markets. You must have your own analytical paradigm to judge where liquidity comes from and where it goes.
The phrase “A rising tide lifts all boats” in the market—this “tide” essentially comes from monetary and fiscal policies.
Of course, nowadays, there is indeed a view that over a relatively long period ahead, the quantitative space for fiscal and monetary stimulation may be limited. For example, further large-scale fiscal leverage increases, significantly raising the deficit ratio—there are considerable practical constraints.
In this case, changes in policy direction and magnitude might not be as sensitive as before, and at some stages, may even seem “not to change much.”
For example, after the annual Two Sessions in March, when the deficit ratio, special government bonds, and local bond quotas are set, the fiscal stance for the year is likely to stay stable.
But even so, research is still meaningful. For example, if 1 trillion yuan in special bonds are to be issued this year, when and how will they be issued? During bond issuance, will the People’s Bank need to coordinate by releasing liquidity? All these will still affect the market.
Another important recent change: The central bank’sscope of responsibilities is changing. The People's Bank now pays attention not only to inflation and growth but also includes financial market stability as an important consideration.
Under this new paradigm, you need to ask:
If the market fluctuates widely, will the central bank use policy tools or coordinate with the “national team” to stabilize? This is different from previous understandings.
So, in the broad framework, I still believe that monetary and fiscal policies remain core variables for understanding asset prices and liquidity. Of course, stock and bond price movements—besides liquidity—are also linked to fundamentals, sentiment, etc.; that’s a different dimension.
One last point.
Many worry: with interest rates already low (e.g., LPR around 3%, 10-year government bonds near 1.8%–2%), is there still research value if rates fall further over time?
Not necessarily. Overseas experience gives the answer:
When the space for rate tools is exhausted, you can have negative rates; when price tools are limited, you can innovate quantitatively and structurally.
So, from an investment perspective, fiscal and monetary policy is still a topic that cannot be avoided and is worthy of ongoing research.
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