GF Strategy: Investment Imperatives from the 2017 Work Report

On March 5th, during the 12th National Congress, the head of State Council, Premier Li, laid out this year's economic foundation with the Government's Work Report for 2017. GF Securities' strategy team from research and development combed through the report, to uncover the major investment themes and priorities for 2017: the diversification of state enterprises, agricultural supply-side reform, the One Belt One Road initiative, and air pollution management.

Based on the Government's Work Report from 2017, the strategy team from GF Securities believes the main points are as follows: 1. Continuing supply side reform through controlling costs, deleveraging and dealing with overcapacity; 2. Deeper reforms, for financial markets and the diversification of state enterprises; 3. Improving agricultural conditions and wages through supply side and structural reform; 4. Actively promoting global networks through the One Belt One Road initiative; 5. Environmental sustainability, with a heavy focus on dealing with air pollution.

Based on the report, the strategy team believes there are four key areas that investors should continue to pay attention to:

1. The diversification of state enterprises will continue to experience large scale reform, especially in the following sectors: energy, oil, natural gas, railroads, aviation, telecommunications, and the military. These seven major, monopolistic industries will be heavily targeted for diversification. The logic behind the proliferation of monopolies should be a specific area of focus. State enterprise diversification for the military, oil and gas, and the railroads should receive considerable attention.

2. Strengthening agricultural supply side reform; the short term goal is for structural changes and the depletion of inventory, attention should be given to directional changes to the processing of corn and the pork industry's breeding and feeding practices; the long term goal is to increase quality while lowering costs, with the modernization of the agricultural industry and land use rights playing a crucial role. Subgoals include enhancing industry integration, irrigation, storage, and logistics.

3. To continue the promotion and construction of the One Belt One Road: first, the construction and integration of land and sea transportation infrastructure, through important regions; secondly, increasing the capacity for international cooperation between major industries; thirdly, a highly productive international One Belt One Road international forum to be held in March of this year. In terms of major investment themes and profitability goals, the integration of facilities and trade, and regional proliferation should be followed closely.

4. A battle for blue skies, with an emphasis on the Beijing, Tianjin, Hebei regions. With the integration of Beijing, Tianjin, and Hebei underway, pollution control in this major region is going to receive a lot of national attention. Integration and environmental protection reforms are going to have to increase in efficiency and scale. With greater government inspection and environmental pressure throughout Beijing, Tianjin, and Hebei, we can expect to see increased efforts in the near future when it comes to pollution control measures. Analyzing the sources of smog, Vocs, desulfurization, denitrification, natural gas substitutes, gas alternatives, and co generative energy practices in the Beijing, Tianjin, and Hebei regions will be of important note.

A GF Securities Research Report:

Investment Imperatives from the 2017 Government Work Report

Analyst: Ling Liao

liaoling@gf.com.cn

Analyst: Jie Chen

gfcj@gf.com.cn

Translated by:

Luke Dimopoulos

luke@gf.com.cn

Risk Disclaimer: Research data from this report was acquired from Wind. The ideas provided by GF Securities Research Center are for your reference and consideration only. All investment strategies and practices are implemented at your own risk. If national policy is not implemented as expected, please be aware of the associated A-share risks, and overall valuations of systematic downside risk.