Report Summary 1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report The economic repair momentum is weakening, and incremental policies are urgently needed. The latest economic data shows that the economic growth momentum continues to slow down, with fixed - asset investment, manufacturing, and infrastructure investment declining, and real - estate investment still having double - digit declines. Consumption repair is unstable, and deflation pressure persists. The economic fundamentals are still weak, and incremental policies need to be quickly implemented to address multiple constraints such as investment, consumption, and debt resolution risks [6][34]. 3. Summary by Directory 3.1 Fiscal Revenue Growth Improves Continuously, Tax Revenue Increases Slightly - General public budget revenue growth rate continues to rise, with local fiscal revenue being the main contributor and the drag from central fiscal revenue weakening. From January to August, the year - on - year growth rate of general public budget revenue reached 0.3%, 0.2 percentage points higher than the previous value, exceeding the annual budget target by 0.1%. The central fiscal revenue has been improving, with the decline narrowing for 6 consecutive months, while local fiscal revenue has maintained positive growth. However, the revenue completion progress is slow [12]. - Tax revenue turns to a slight increase, and non - tax revenue continues to shrink. From January to August, the cumulative growth rate of tax revenue turned positive to 0.02%, rising for 6 consecutive months. Securities trading stamp duty contributes significantly, while consumption tax, real - estate tax, and foreign - trade tax are still drags. The growth rate of non - tax revenue dropped to 1.5%, declining for 6 consecutive months [17]. 3.2 Fiscal Expenditure Growth Declines, Infrastructure Expenditure Growth Declines Significantly - Fiscal expenditure growth has declined across the board, with both central and local expenditures hitting new lows this year. From January to August, the year - on - year growth rate of general public budget expenditure was 3.1%, with the increase narrowing by 0.3 percentage points. The expenditure rhythm is the lowest in the same period in the past five years. The growth rate of central expenditure is still relatively high but has declined by 0.8 percentage points from the previous month, while local expenditure growth has declined for 4 consecutive months, mainly affected by factors such as the decline in land transfer income [22]. - In terms of expenditure structure, people's livelihood expenditure has slowed down from a high level, and infrastructure expenditure has shrunk significantly. The growth rate of social security and employment expenditure has slightly increased, while the growth rates of education and health - care expenditure have slightly decreased. The growth rate declines of infrastructure - related expenditures such as agriculture, forestry, and water affairs and urban - rural community affairs have expanded [26]. 3.3 Government - Fund Revenue and Expenditure Growth Slows, Special Bond Issuance Speeds Up but Remains Slow - Government - fund revenue and expenditure growth is weak. The revenue side is under continuous pressure, with the year - on - year growth rate of government - fund revenue from January to August being - 1.4%, and the decline expanding. The expenditure side growth rate has marginally declined. The revenue growth rate is significantly lower than the expenditure growth rate, and the "mismatch" between revenue and expenditure progress highlights the debt - resolution pressure [28]. - Local government special bond issuance has accelerated but remains slow. From January to August, the completion progress of new special bonds was about 74.2%, an increase of about 11 percentage points from the previous value, but still 15 percentage points lower than the average in the same period from 2022 - 2024. The slow issuance is mainly restricted by debt resolution and tightened access to projects [28]. 3.4 Incremental Policies Are Approaching The economic repair momentum is weakening, and incremental policies are urgently needed to be stepped up. The economic growth momentum continues to slow down, consumption repair is unstable, and the economic fundamentals are still weak. Incremental policies need to be quickly implemented to address multiple constraints [6][34].

Group 1: Federal Reserve Actions - On September 17, the Federal Reserve lowered the federal funds rate target range to 4.00%-4.25%, a decrease of 25bps[1] - The dot plot indicates two more rate cuts expected in 2025, but only one in 2026, suggesting a potential hawkish shift[1] - The Fed's decision is characterized as a "risk-management cut," emphasizing a cautious approach rather than a preemptive one[2] Group 2: Economic Outlook - The Fed acknowledges a slowdown in the job market, with job gains slowing and the unemployment rate edging up but remaining low[3] - Inflation expectations have increased, with the Fed noting that inflation has moved up and remains elevated[3] - The SEP (Summary of Economic Projections) shows an upward revision of GDP growth for 2025 from 1.4% to 1.6%[4] Group 3: Market Reactions - Following the announcement, market pricing indicates expectations for a 25bps cut in October and December[8] - The market has priced in a total of 75bps of cuts across three meetings in 2025, but Powell's comments have tempered expectations for further cuts[8] - The S&P and Nasdaq experienced volatility, while the Dow Jones rose, and the dollar strengthened post-announcement[8]

Investment Rating - The investment rating for the industry is Neutral (downgraded) [7] Core Views - The Federal Reserve has lowered the federal funds rate target range by 25 basis points to between 4.00% and 4.25%, shifting focus from inflation to employment risks [3] - The market has already priced in the recent rate cut, with limited upward potential for gold prices in the short term, and attention should be paid to potential pullback risks [4] - The consistency among Federal Reserve Board members regarding rate cuts indicates limited political interference from the White House, which may lead to a more stable policy environment [4] - The long-term bullish logic for gold prices remains intact, with expectations of further rate cuts in October and December, which would lower the opportunity cost of holding gold [9] Summary by Sections Federal Reserve Actions - The Federal Reserve's recent rate cut is characterized as a risk management cut, with expectations for two more cuts within the year, totaling a potential reduction of 50 basis points [3][4] Market Performance - Gold prices have increased by 11.82% over the past month, but the potential for further increases is limited due to already high price levels [4] - The market performance of precious metals has shown a decline of 10% recently, indicating a need for cautious investment strategies [7] Future Outlook - The ongoing increase in gold reserves by China, with an addition of 60,000 ounces in August, reflects strong demand for gold as a safe-haven asset amid global uncertainties [9] - The political dynamics surrounding the Federal Reserve's leadership changes are crucial to monitor, as they may influence future monetary policy and market reactions [5]

Production - Industrial production growth in August was 5.2%, below the expected 5.8% and down 0.5 percentage points from the previous month[3] - The decline in industrial production was primarily due to a decrease in export growth, which turned negative at -0.4% for the first time this year, down 1.2 percentage points from last month[3] - The service production index growth fell to 5.6%, indicating a slowdown in the service sector[3] Investment - Fixed asset investment growth in August was -7.1%, a decline of 1.8 percentage points, with a cumulative growth of 0.5%, down 1.1 percentage points from the previous month[4] - Real estate investment saw a significant drop, with a monthly growth rate of -19.5% and a cumulative decline of -12.9%[4] - Infrastructure investment also decreased, with broad infrastructure cumulative growth at 5.4% and narrow infrastructure at 2.0%, both down from the previous month[4] Consumption - Retail sales growth in August was 3.4%, a decrease of 0.3 percentage points from the previous month, indicating a cooling in consumer spending[5] - Dining consumption showed slight recovery with a growth rate of 2.1%, while overall goods retail growth was 3.6%, down 0.3 percentage points[5] - The consumption of gold and jewelry surged to 16.8%, doubling from the previous month, while other discretionary categories showed mixed results[6] Outlook - The economic slowdown in August reflects ongoing pressures in production, investment, and consumption, necessitating targeted policy interventions[7] - Future policy efforts are expected to focus on boosting investment and service consumption, with financial tools likely to support infrastructure investment[7] - The overall economic environment remains challenging, with continued pressure from declining exports and a cooling real estate market[7]

Group 1: Social Financing and Credit Trends - The growth rate of social financing stock fell to 8.8%, with new social financing of 2.57 trillion yuan in August, a year-on-year decrease of 465.5 billion yuan[1] - New corporate short-term loans increased by 70 billion yuan, a year-on-year increase of 260 billion yuan, while new medium to long-term loans decreased by 200 billion yuan to 470 billion yuan[2] - New RMB loans amounted to 625.3 billion yuan, a year-on-year decrease of 415.8 billion yuan, indicating weak demand from both enterprises and residents[10] Group 2: Monetary Supply and Demand - M1 growth rate rebounded by 0.4 percentage points to 6.0%, supported by a low base from the previous year and a shift of funds towards risk assets[36] - M2 growth rate remained stable at 8.8%, with a year-on-year decrease in corporate and household deposits of 50.3 billion yuan and 600 billion yuan respectively[39] - The internal demand recovery signal remains to be validated, with the current financial data showing a pattern of "government bond supply decrease + insufficient credit demand"[44] Group 3: Economic Outlook and Risks - The recovery of corporate profits is a core variable for future improvements, with signs of marginal improvement in manufacturing sector conditions[5] - The pace and intensity of fiscal efforts are crucial, as the issuance of special bonds slowed down in August, but refinancing bonds increased, indicating a focus on maintaining existing debt levels[5] - Risks include macroeconomic performance falling short of expectations, slower demand recovery, and unexpected geopolitical risks[45]

Group 1: CPI Overview - The US CPI for August increased by 2.9% year-on-year and 0.4% month-on-month, aligning with expectations[1] - Core CPI rose by 3.1% year-on-year and 0.3% month-on-month, meeting forecasts[1] - The overall CPI growth rate is consistent with expectations, indicating a moderate transmission of tariffs on inflation[1] Group 2: Food and Energy Impact - Food prices increased by 0.5% month-on-month, with significant rises in tomatoes (4.5%), eggs (3.9%), coffee (3.6%), and apples (3.5%)[2] - Energy prices rose by 0.7% month-on-month, reversing a previous decline of -1.1%, driven by geopolitical tensions and increased summer travel demand[2] - Brent crude oil prices slightly decreased to $67.49 per barrel, indicating a stable outlook for oil prices despite recent fluctuations[2] Group 3: Market Reactions and Future Outlook - Following the CPI release, market expectations for rate cuts in September and October increased, with a projected 25 basis points reduction[1] - The upcoming FOMC meeting will focus on the potential for further rate cuts and the impact of employment data on inflation trends[3] - Concerns about long-term inflation risks remain, despite short-term pressures being manageable[3]

Employment Data - In August, the U.S. non-farm payrolls increased by only 22,000, significantly below the expected 75,000 and the previous value of 79,000[3] - The unemployment rate rose slightly to 4.3%, matching expectations but up from 4.2%[3] - The Labor Department revised the non-farm employment data for June and July, resulting in a total downward adjustment of 21,000 jobs[3] Sector Performance - The goods-producing sector saw a job loss of 25,000, continuing a downward trend, while the service sector added 63,000 jobs, down from 85,000 in the previous month[4] - Notably, the manufacturing sector lost 12,000 jobs, and government employment decreased by 16,000[11] Market Implications - Following the employment data release, the market anticipates a 25 basis points rate cut by the Federal Reserve in September and October, with some speculation about a potential 50 basis points cut in September[3] - The short-term U.S. Treasury yields have declined rapidly, while long-term yields have remained relatively stable[5] Economic Outlook - The labor market is showing signs of weakness, but the unemployment rate has not increased significantly, suggesting that the Federal Reserve may not act too quickly on rate cuts[4] - The market is closely monitoring the upcoming CPI data on September 11, which will provide further insights into inflation trends[5] Risks - There are risks associated with the U.S. economy potentially declining more than expected, as well as uncertainties surrounding monetary and fiscal policies[51]

Export Data - In August, exports grew by 4.4% year-on-year, down 2.8 percentage points from the previous month, and below the Wind consensus expectation of 5.9%[3] - Month-on-month, exports were flat with a 0.1% increase, indicating a stagnation in export value compared to the previous month[3] - The decline in export momentum is attributed to a high base effect from the previous year and signs of demand exhaustion from earlier periods[3] Trade with the US and Other Regions - Exports to the US fell by 33.1% year-on-year, a further decline of 11.4 percentage points from the previous month, with a month-on-month decrease of 11.8%[4] - The share of exports to the US has decreased from 12% to 10% in the second half of the year[4] - Exports to non-US regions showed significant growth, with the EU growing by 10.4% and ASEAN by 22.5% in August[4] Product Categories - Labor-intensive product exports saw a significant decline, with categories like bags, clothing, and footwear experiencing drops of -14.9%, -10.1%, and -17.1% respectively, collectively dragging down overall export growth by 1.2 percentage points[5] - In contrast, electromechanical products grew by 7.6%, contributing 4.5 percentage points to export growth, while high-tech products increased by 8.9%, adding 2.1 percentage points[5] Import Data - Imports grew by only 1.3% year-on-year in August, a decrease of 2.8 percentage points from the previous month, primarily due to low prices of bulk commodities[6] - Energy imports continued to decline, with coal, crude oil, and natural gas imports down by -35.9%, -15.1%, and -8.4% respectively[6] - Agricultural imports turned negative again, with a decline driven by reduced volumes and prices of grains and soybeans[6] Future Outlook - Export momentum may weaken further due to high base effects in Q4, but there are supportive factors such as improved global economic recovery, particularly in the EU and ASEAN regions, which together account for 33% of China's total exports[8] - Exports to Africa have been strong, with a cumulative growth rate reaching 24.6% in August, increasing its share of total exports to 6%[8]

Investment Rating - The investment rating for the industry is "Positive" (maintained) [2] Core Insights - The report emphasizes the significance of the "Artificial Intelligence +" policy issued by the State Council, which aims to elevate China's digital economy from connectivity to intelligent driving, marking a qualitative leap in productivity [6][8] - The policy outlines three developmental stages with specific targets for 2027, 2030, and 2035, indicating a clear path for the integration of AI into various sectors [7][8] - The report identifies six key actions to accelerate AI implementation across different domains, focusing on the integration of AI with economic and social development [9][10] Summary by Sections 1. "Artificial Intelligence +" Policy Interpretation - The policy aims to deeply embed AI into production, governance, and innovation, transforming the operational logic of the economy and society [6][8] - It represents a strategic shift towards a new productivity paradigm, building on previous initiatives like "Internet +" [6][8] 1.1 Three-Stage Goals - The goals set for 2027 include widespread integration of AI in six key areas, with a target application penetration rate exceeding 70% [7] - By 2030, AI is expected to fully empower high-quality development, with application penetration exceeding 90% [7] - The 2035 goal envisions a transition to an intelligent economy and society, supporting the realization of socialist modernization [7][8] 1.2 Six Key Actions - The six actions target AI applications in various sectors, including technology, industry, consumer quality, public welfare, governance, and global cooperation [9][10] - These actions aim to promote deep integration of AI with economic and social systems, facilitating large-scale applications [9][10] 1.3 Basic Support Capabilities - The report highlights eight foundational capabilities necessary for AI development, including model enhancement, data supply innovation, and computational power coordination [27][29] - Emphasis is placed on the importance of model quality, data diversity, and computational resources as pillars for AI advancement [29] 2. Investment Layout Directions - The report suggests focusing on infrastructure, AI applications, edge devices, and the integration of AI with emerging technologies as key investment areas in the current A-share market [46][49] - Infrastructure is highlighted as critical, with a surge in demand for computational power driven by the growth of generative AI and industry-specific models [49] - AI applications are transitioning from concept validation to value creation, with a focus on matching technology maturity with industry needs [50] - Edge devices are identified as a significant area for growth, particularly in smart connected vehicles and AIoT [51]

Group 1: Fiscal Revenue Insights - The growth rate of general public budget revenue turned positive, with a year-on-year increase of 0.1% from January to July, ending the negative growth trend observed earlier in the year[4] - In July, the monthly growth rate reached 2.6%, the highest for the year, with both central and local revenue growth hitting new highs[4] - Major tax categories, including corporate income tax, domestic value-added tax, personal income tax, and consumption tax, contributed 94% to the revenue growth, indicating a structural improvement in revenue sources[4][25] Group 2: Fiscal Expenditure Trends - General public budget expenditure grew by 3.4% year-on-year from January to July, maintaining stability but showing significant divergence between central and local expenditures[5] - Central expenditure increased by 8.8%, while local expenditure growth fell to 2.5%, the lowest for the year, reflecting challenges in local fiscal management[5] - Social security and health expenditures showed strong growth, with social security spending increasing by 9.8% and health spending by 5.3%, while infrastructure-related expenditures remained weak[38] Group 3: Government Fund Performance - Government fund revenue saw a year-on-year decline of 0.7%, but the rate of decline improved, primarily due to better land transfer income[5] - Land transfer income decreased by 4.6%, indicating ongoing weakness in the real estate market, while government fund expenditure surged by 31.7%[5] - The issuance of special bonds by local governments accelerated, with completion rates reaching 63.1% of the annual quota, a 14 percentage point increase from previous values[5] Group 4: Policy Outlook and Risks - Future fiscal policies will focus on accelerating existing policies and enhancing new tools to stimulate economic growth, as indicated by recent government meetings[6] - Despite improvements in fiscal revenue and expenditure structures, challenges remain, particularly in meeting budget completion rates and addressing weaknesses in real estate-related tax revenues[6][7]