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Red Dragon Clocks Fastest Growth in 7 Years: Top 5 Gainers

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China’s economy has been gathering steam since last year. For the first time, China’s economic growth has moved north rather than south. China’s economy, which is nearly two-third the size of the United States, might outpace the United States within the next 10 years if the current rate of expansion continues.

The economy maintained stable and sound development, underpinned by a recovery in export and buoyant consumer spending. Industrial output grew faster with rise in profits at enterprises, while the service sector maintained fast growth.

China stocks scaled to a 2-year high on such hearty GDP data, with the Shanghai index recording its fifth straight week of gains. Considering the bullish trends, investing in sound China stocks isn’t a bad proposition. After all, Beijing is quite capable of tackling some of its biggest economic hurdles, including financial risks and environmental pollution.

Economy Rebounds in 2017

The world’s second-largest economy expanded 6.9% year-on-year to around $12.84 trillion and registered its fastest growth in seven years, according to the National Bureau of Statistics (NBS). The growth rate surpassed official estimates of about 6.5%.

The rate also beat estimates of both the International Monetary Fund (IMF) and the World Bank. While the IMF projected the Chinese economy to grow 6.8% in 2017, World Bank estimated growth at 6.7%. China also witnessed steady fourth-quarter growth of 6.8%, unchanged from the third quarter, per the NBS.

Catalysts Behind the Surge

Robust exports and an uptick in consumer spending were cited to be the reasons behind the rapid expansion. Synchronized expansion in the global economy helped by a surge in demand for semiconductors and other technology products has been a boon for China, with exports growing at the fastest pace in four years. China’s exports grew almost 11% in 2017 from the prior year, while the combined value of exports and imports rose 14.2%.  

Consumption, in fact, was the primary driver. It contributed almost 58.8% to GDP growth last year, indicating the government’s successful attempt to rejig the economy from being export driven to one that depends more on consumption. Retail sales of consumer goods went up 10.2% in 2017 compared to the previous year.

Industrial Production, Service Sector Maintain Fast Growth

Industrial output increased 6.6% in 2017, up 0.6% from a year ago. Increase in domestic demand, momentum from the Belt and Road initiative and a rebound in global economic growth helped Industrial businesses. In fact, manufacturing companies in China received more orders last year compared to the prior year and their cash flow improved significantly. Such a trend is expected to be a shot in the arm for all upstream, middle and downstream manufacturers. Lest we forget, corporate profits of industrial manufacturers collectively rose 21.9% year over year to 6.88 trillion yuan between January and November last year, per the NBS.

The index of services production increased 8.2% last year, up 0.1% from a year ago. Moreover, the service sector expanded at the fastest clip in three years last December on an increase in volume of new business. The Caixin-Markit services purchasing managers’ index came in at 53.9 in December, its highest since August 2014. New orders for such companies were strongest since May 2015 and continued to recruit more employees on reports of higher business requirements.

What Will 2018 Unfold for China’s Economy?

Xi Jinping’s party, in the meanwhile, continues to prevent major financial risks within the China economy. In order to tighten control over the financial sector, Beijing has already banned Bitcoin from the financial system. The government has categorically said that it will maintain a “proactive fiscal policy and prudent monetary policy” for this year. The government aims to consolidate the country’s 100 trillion yuan (US$15 trillion) asset-management industry under a single regulatory umbrella.

The party is also determined to move away from high-speed growth to high-quality growth. Here, quality means getting the economy cleaner and more user-friendly. Initiatives to make local authorities accountable for environmental damage and shutting down polluting factories are already on track.

How to Play the Stellar Growth? 5 China Stocks

As China’s economic growth looks strong, adding sound Chinese stocks from both the manufacturing and service sectors to your portfolio seems judicious. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

PetroChina Company Limited (PTR - Free Report) , together with its subsidiaries, primarily engages in a range of petroleum related products, services, and activities. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 17.3% in the last 60 days. PetroChina’s expected growth for the current year is more than 100%, higher than the industry’s projected growth of 34.5%. The company has given a solid return of 13.5% in the last six months.

SORL Auto Parts, Inc. develops, manufactures, and distributes automotive brake systems and other safety related auto parts to automotive original equipment manufacturers and the related aftermarket in the People’s Republic of China. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 25.4% in the last 60 days. SORL Auto Parts’ expected growth for the current year is 58%, higher than the industry’s projected growth of 16.5%. The company has given a stellar return of 75.9% over the last six months.

Sinopec Shanghai Petrochemical Company Limited (SHI - Free Report) is a Zacks Rank #1 company that manufactures and sells petrochemical products in China. The Zacks Consensus Estimate for its current-year earnings soared 60.3% in the last 60 days. Sinopec, which is part of the Chemical - Diversified industry, is poised to yield positive returns this year. The company has given a solid return of 7.4% in the last 6-month period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Autohome Inc. (ATHM - Free Report) operates as an online destination for automobile consumers in China. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 18.6% in the last 90 days. Autohome’s expected growth for the current year is 42.9%, higher than the industry’s projected growth of 10.8%. The company has given a promising return of 43.4% in the last six months.

Noah Holdings Limited (NOAH - Free Report) operates as a wealth management service provider with focus on wealth investment and asset allocation services for high net worth individuals and enterprises in the People's Republic of China. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 17.3% in the last 60 days. Noah Holdings’ expected growth for the current year is almost 21%, higher than the industry’s projected growth of 12.3%. The company has given a superb return of 66.2% over the last six months.

Will You Make a Fortune on the Shift to Electric Cars?

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