Policy shift breathes fire into China’s economy

China’s new administration announced plans to stimulate domestic consumption. These include the removal of business and value-added taxes (VAT) for small businesses that generate monthly sales of 20,000 yuan (approximately £2,100) or less, further VAT reform in the transportation and service sectors, financial support for small and medium sized enterprises, supportive measures to control and manage credit, and further investment in specific infrastructure projects, including its railways.

Supportive data released in recent weeks indicate China is set to meet the government’s 7.5% growth target for 2013. The official August purchasing managers’ index (PMI) survey for the manufacturing sector rose to a 16-month high of 51.0. PMI readings above 50 reflect expansion. Meanwhile, the services sector PMI continued to expand (53.9) albeit slightly down from July’s reading (54.1). Profits from China's industrial firms rose 11.6% year-on-year in July and foreign direct investor inflows rose by 24.1% in July from a year ago to $9.4bn. Retail sales and exports were also up on last year. In our view, China offers the most attractive combination of value and yield at current levels across the Asia Pacific region, particularly with its improving economic environment. As a result, we have been increasing exposure through companies such as Hong Kong-listed Skyworth Digital, which is one of the largest TV manufacturers in China. The company has the potential to benefit over the long term from rising incomes and higher rates of urbanisation.

Mike Kerley, manager of the Henderson Asian Dividend Income Unit Trust and the Henderson Horizon Asian Dividend Income Fund.

These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.