As can be seen from the 13th Five-Year Plan, the environmental protection industry will play an increasingly important role in the development of the national economy. Not only is it expected to become a pillar industry of the national economy and contribute to economic recovery, but it is also tasked with serving as a red-line driver for supply-side reform and exerting regulatory influence on other industries.

　　During the policy deployment phase, the market demand for the environmental protection industry has been systematically strengthened and made more resilient.

　　As the inaugural year of the 13th Five-Year Plan in 2016, it marked the year for top-level design in the environmental protection industry. The government’s primary task was to adopt a holistic perspective and set forth clear development goals for the 13th Five-Year Plan, while also drafting corresponding plans and supporting policies. Judging from the current policy landscape, multiple government departments have introduced policies from various angles, systematically enhancing the voice of environmental protection and bolstering the rigidity of market demand in the environmental protection industry—thus laying a solid foundation for a new round of development in environmental protection during the 13th Five-Year Plan period. In 2017, the second nationwide census of pollution sources will commence. We believe that prior to the census, certain segments of the market will experience an initial release of demand; whereas after the census, the advancement of environmental protection efforts will become even more precise and standardized, and the formulation of supporting policies will be refined further. As a result, the environmental protection industry will once again enter a phase of rapid growth in the latter half of the 13th Five-Year Plan period, moving steadily toward becoming a pillar industry.

　　Automotive Dismantling: Focusing on Investment Opportunities Brought by the New Round of Mandatory Phasing Out and the Relaxation of Regulations on Remanufacturing of the Five Major Components

　　As the mandatory scrapping policy for yellow-label vehicles has largely come to an end, China’s automotive dismantling industry hit a temporary low point in 2016. In the first half of 2017, the industry is expected to see two major positive developments: First, key cities are set to launch a new round of mandatory scrapping for “National I” and “National II” vehicles; second, the draft of Document No. 307, currently seeking public comments, proposes formally allowing the remanufacturing of the five major vehicle components. We believe these favorable factors will boost the performance of companies in the industry and drive five major development trends within the sector, including:

　　1) Capacity and channel deployment led by mergers and acquisitions;

　　2) The refinement of industry division of labor and the intensification of upstream-downstream collaboration;

　　3) Introduce incentives for early vehicle scrapping through means other than administrative measures;

　　4) The importance of fine decomposition skills has greatly increased;

　　5) The rise of parts remanufacturing.

　　Each sub-industry has plenty of highlights.

　　1) Water Utilities: The “Ten Measures for Water” and PPP models have helped maintain solid fundamentals. Next year, water utilities will benefit from potential water price hikes and the introduction of water resource taxes, driving a rebound in their profitability.

　　2) Atmosphere: We anticipate that hot topics such as ultra-low emissions and VOCs in non-electric industries will create incremental growth opportunities for this sector.

　　3) Solid Waste: We remain optimistic about the market potential and M&A opportunities in hazardous waste disposal; we are also paying close attention to the investment opportunities arising from the new round of mandatory vehicle dismantling and the liberalization of remanufacturing for the five major components.

　　4) Environmental monitoring: A quality-oriented approach has resulted in highly rigid monitoring requirements, and multiple monitoring systems are yet to be established.

　　5) Soil Remediation: The revenue recognition cycle has arrived, and the benefits from the “Ten Measures for Soil Remediation” are about to be realized. Among the sub-sectors we are most optimistic about are hazardous waste management, environmental monitoring, and membrane treatment.