Will Beijing's Long-Term Approach Mean Big Gains for the Hang Seng?

China's been a mixed bag for investors this year as the country's slowdown has conflicted with other economic gains around the world, but Hong Kong's Hang Seng (HSIINDICES: ^HSI  ) stock index has surged recently. Over the past three months, the Hang Seng has gained more than 7%, and it added another 0.4% to that rise over the past five days, thanks to a big jump on Friday.

China's working out how to come back from its slowdown, but even as optimism cautiously grows that the world's second-largest economy has avoided a "hard landing," challenges remain for businesses and investors.

China turns toward the long term
China's purchasing managers index (PMI) missed the mark in September, coming in with a reading of 51.1. Any reading above 50 shows expansion in the manufacturing sector, but economists had expected a 51.5 mark. Still, China's growth in the sector is rising, albeit slowly. Beijing is approaching the country's economic rebound with a stable, long-term perspective, aiming for sustainable growth for years to come -- even if it costs some growth currently. Chinese Premier Li Keqiang projects that the economy will manage greater than 7.5% growth through the first nine months of the year when the third-quarter economic data is released. Keqiang also stated that he feels 7% average annual growth will be enough to meet China's long-term growth projections.

The IMF's not so positive in the near-term, however. Earlier this month, the IMF slashed its projections of China's full-year economic growth to 7.3%, part of a gloomier outlook that included economies such as Brazil, Mexico, and even the U.S. The World Bank also dropped its forecast, although it still projects 7.5% full-year growth from an earlier outlook of greater than 8% expansion. The IMF did back up Beijing's stance, however, noting that China's lower growth this year could be a prelude to stronger long-term growth in the future.

Not all of China's businesses are feeling the love, however. The country's services sector saw growth slow in September. New orders in particular dropped for the month, as some companies struggle to come back after the earlier cash crunch this year.

A few industries are looking up for investors, however. China's rising oil demand should mean good things for state-owned oil firms PetroChina (NYSE: PTR  ) and SinoPec (NYSE: SNP  ) . While both these stocks have fallen in 2013 -- PetroChina shares are down 19.9% year to date, while SinoPec's stock has lost 11.6% -- these firms are on the right side of rapidly rising oil consumption in the country. China already became the world's leading oil importer in September, according to the U.S. Energy Information Administration.

PetroChina and SinoPec's strategies of investing abroad for oil in Africa, Iraq, and elsewhere have paid off for the firms, as each has grown revenue by more than 10% in each of the last two years. However, their state-owned nature makes them tricky plays for investors. However, as long as China's demand continues to rise, and Beijing continues its path toward steady long-term growth, SinoPec and PetroChina should be great picks for the long run as two of the world's biggest energy giants in one of the largest markets.

As some in Beijing, like some political pundits in Washington, see reliance on oil imports as a strategic energy weakness, expect SinoPec, PetroChina, and the country's energy giants to turn their attention toward fulfilling Chinese demand in the coming years. With the Chinese auto market hotter than anywhere else in the world, and fueling a demand for gasoline, the stars are aligning for these two huge energy picks.

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