The Hang Seng (HSIINDICES: ^HSI) stock index in Hong Kong might be rebounding here at the end of 2013, but is China itself ready to bounce back as a profitable target for investors? The Hang Seng's teetered between gains and losses in the latter half of the year after starting 2013 off with poor performance, and the index picked up another 1.6% this past week to continue its recent run.
But the Hang Seng's not the only part of China that's looking up for investors. Growth investors have long kept an eye on the country's many growth sectors, such as solar power firms like Yingli Green Energy (NYSE: YGE), and Trina Solar (NYSE: TSL). China's economy is picking up steam, but will investors in these firms, and other growth picks across the Pacific, benefit in the long run?
Will China's growth even out?
China reported its third-quarter economic figures on Friday, and the country didn't disappoint after a half year of doing just that. The Chinese economy picked up by 7.8% year over year for the quarter, a slight increase from the 7.5% mark it notched in the second quarter. That was enough to send the Hang Seng up by a full 1% on Friday.
However, the real question for investors who are worried about China's outlook is whether or not the world's second-largest economy can sustain that type of growth. Higher government spending was responsible, in part, for the third-quarter success. Beijing's minor stimulus effort, in reaction to a downturn in demand for Chinese goods, helped, but consumption was only responsible for just around 45% of the economy's growth. Trade, another key cog of China's growth story, barely moved the needle at all.
That's not the way to maintain the long-term growth projections that Beijing has touted. Fortunately, the country is making moves to shore up its trade data, at least. Beijing agreed with the European Union on Friday to negotiate tearing down investment restrictions, and deciding on clearer business guidelines after a brief trade spat brewed between the two regional powers earlier in the year. China is one of the EU's largest trading partners, and revving up exports to European nations will help China's own trade data get back to what investors are used to.
A successful negotiation between the two powers will also help Chinese solar-panel companies. China's solar firms took center spotlight in that earlier trade spat, as Europe accused them of selling their goods below cost. While Europe eventually ironed out a deal with China over the solar firms, a better economic relationship between the two political blocs will keep investors from having to keep one eye on the relations between Beijing and Brussels at all times.
Deutsche Bank certainly thinks so. The German financial leader raised its price target on both Yingli Green Energy and Trina Solar this past week, citing strong long-term demand across the globe for solar panels. Deutsche also singled out Chinese domestic demand picking up in the long run for solar, and Yingli and Trina are two of the more obvious candidates to fulfill that market. Beijing has long sought to dominate resources -- its ventures by state-owned oil and energy companies in Africa are great examples of that -- and if the Chinese government believes solar power is a critical piece of its ambitions, it'll turn to companies like these to fulfill its aims.
The stocks of Yingli and Trina have surged this year by triple-digit percentages, growth that will likely give investors pause. However, if Deutsche Bank's predicted demand shows up, the run might just be getting started for these companies and others in the solar sector.
