Annual Report 2022

30 China Merchants China Direct Investments Limited Annual Report 2022 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) PROSPECTS In view of five factors—the delayed effects of tightening of monetary policy in the world’s major developed economies, the partial restoration of the global supply chain, the decline in global energy and food prices, the retracement of a strong US dollar from its recent peak, and the high inflation base in 2022—global inflation is expected to weaken quarter by quarter in 2023, but inflationary pressures may remain stubborn throughout the year. As a result of persistent high inflation and monetary tightening, the economic growth of major developed economies is likely to face additional downward pressure. However, it is expected that the development of China’s economy will continue to assign greater importance to the promotion of industrial transformation and upgrade and to investments in people-oriented urbanisation, as a hedge against these external downward pressures on economic growth. Given that China’s overall economic growth environment is expected to stabilise and to pursue progress in 2023, and that China’s economic restructuring is continuing under the “14th Five-Year” plan, it is expected that the operating results of the investment projects (mainly operating in China) held by the Fund may continue to improve. According to the principles of the Central Economic Working Conference held in December 2022, China’s economic growth should insist on prioritising stability, while also striving for progress in 2023. It should continue to implement a proactive fiscal policy and a prudent monetary policy, as well as to strengthen macro policy control and enhance coordination among various policies, so as to achieve synergy for high-quality economic development. The five main policy points are: (1) To focus on expanding domestic demand by giving priority to restoring and expanding consumption. (2) To accelerate the construction of a modern industrial system. For key industry chains in the manufacturing industry, we have to precisely identify the weak links in key technologies and component parts, and then focus our collective efforts, coupled with quality resources, to strengthen these weak links so as to ensure that the industrial system is independently controllable, safe, and reliable, and that the national economic circulation is smooth. (3) To deepen the reform of state-owned enterprises and improve their core competitiveness. (4) To make greater efforts to attract and utilise foreign investment, while promoting a high level of openness to the outside world and improving the quality and level of trade and investment cooperation. And, (5) To effectively prevent and mitigate major economic and financial risks. To ensure the stable development of the real estate industry, do a solid job of ensuring the delivery of buildings and preserving people’s livelihoods and stability, meet the reasonable financing needs of the industry, promote restructuring within the industry through mergers and acquisitions, and prevent and mitigate risks of outstanding and leading real estate enterprises in an effective manner, while improving their assets and liabilities positions. Given that China’s economy shows both resilience and great potential, its long- term economic outlook for prosperity has not changed and the potential for investment demand remains strong. As an example, the AI industry and new-type infrastructure construction will continue to receive greater support from government policies, as well as more attention from capital markets. With the advent of the big data era, along with improvements in algorithms and enhancements in the accuracy of unsupervised learning, AI enters a period of rapid growth in which “big data + AI” will profoundly change the structure of traditional industries. It is here that the Fund will continue to seek out the best opportunities for investment.