China's 19th Plenary Session – Investment Implications

China's 19th Plenary Session – Investment Implications China’s President Xi Jinping mapped out the future of China in a five-year party review. Xi declared that China is entering a new phase to create a modern socialist country. His agenda focused on the quality of economic development and increasing its role in world affairs. While these policies are a continuation of Xi’s previously stated goals, the impact of these policies will have a consequential effect on geopolitical, economic, and global capital market dynamics. Quality vs Quantity: China is currently the second largest economy in the World with about 25% share of global manufacturing and trade. China’s gains have come at the expense of its trading partners. With protectionism on the rise and diminishing cost advantages, the government realizes that it needs to increase domestic demand and move into value added goods and services to continue its economic growth. To achieve its goals, China plans to reduce its reliance on unprofitable and state-run enterprises, deregulate and open its markets to foreign competition. This plan is already underway and may accelerate in the years ahead. Through these efforts, China hopes to further expand its middle class, raise the quality of life of its people and improve domestic consumption. The potential implications of these actions are 1) slower global economic growth (China represents about a third to half of World GDP growth), 2) increased opportunities for U.S. business in China, particularly, technology, finance and healthcare but less demand for industrial and commodities, 3) increased competition in technology, defense, and healthcare overseas, 4) a potentially weaker dollar (as the renminbi plays a larger role in global currencies), 5) an acceleration in demand for green technologies as China plans $493bn in renewable energy investments by 2020 and a ban combustible engine car sales by 2040. Anti-Corruption: This has been Xi’s main campaign since he came to power and will continue to be his focus. China’s planned economy has been its strength but has led to widespread corruption. One key initiative will be to create a new independent citizen council which will oversee the Chinese communist party. The benefits will lead to improved efficiency, a higher quality of economic growth, increased competitiveness and fairer market place which will attract more foreign investment. A greater role in the World: China already has the World’s largest standing army and is rapidly modernizing its military technology. China is increasingly asserting its influence in Asia and has been expanding its operations in Africa and Latin America. China established its first military base in Djibouti and is providing $60bn in economic projects across Africa (compared to America’s $8bn). US Hegemony is already at risk, but, as China’s economic assistance increases, it will continue to challenge US interests abroad. This will have negative implications for U.S. businesses in overseas markets and will increase tensions across the globe. In Conclusion, we believe China is the key driver for global economic growth and its future development plans will be critically important to capital markets and your investment portfolio. With over twenty years of experience in Asian markets, Cypress Path Capital can help you position your portfolio based on China’s fiveyear plan. Please give us a call if you would like to discuss your portfolio.

Raymond Mayer and Howard Given Cypress Path Capital, LLC 831-293-4114 This report is for informative purposes only. Cypress Path Capital, LLC does not represent that this report is accurate or complete, and it should not be relied upon as such. The opinions expressed in this report reflect judgments as of this date and are subject to change without notice.