Economic Overview - In July, industrial added value increased by 5.7% year-on-year, down from 6.8% in June, while the service production index rose by 5.8%[1] - External demand showed unexpected strength with exports growing by 7.2%, surpassing the expected 5.9%, while internal demand weakened with retail sales increasing by only 3.7% compared to 4.8% in June[1] Consumer Trends - Retail sales growth declined from 6.4% in May to 4.8% in June and further to 3.7% in July, primarily driven by a slowdown in goods sales[1] - The sales growth of "trade-in" subsidy products fell from an average of 17.5% to 12.7%, indicating a significant impact on overall retail performance[1] Investment Insights - Fixed asset investment growth dropped from 2.6% in June to 1.6% in July, with construction investment showing negative growth for the first time since August 2020, at -0.8%[1] - Manufacturing investment growth decreased from 7.5% in June to 6.2% in July, highlighting a divergence in investment performance across different sectors[2] Future Outlook - Despite potential pressures in Q4 due to high base effects and demand front-loading, there are three supporting factors for consumer growth in the second half of the year: gradual recovery in dining growth, the release of childbirth subsidies, and consumer loan interest subsidies[1] - The construction sector is expected to face continued pressure in August due to adverse weather conditions, but policy-driven financial tools may provide support in Q4[2]

Report Industry Investment Rating No relevant information provided. Core Viewpoints - In the fifth week of July, futures sentiment cooled down, and spot prices mostly had small month - on - month declines, but prices were still higher than at the end of June. Food prices reversed from a decline to an increase. Container shipping prices continued to fall, and port cargo volume decreased month - on - month but remained high year - on - year. In the industrial sector, the incremental measures from the Politburo meeting in July were slightly weaker than expected, causing futures sentiment to cool and investment product prices to decline. In the investment sector, typhoon and rainfall affected construction activities, leading to a continued decline in cement prices. In the real estate sector, the end - of - month sales rush for new homes was evident, while second - hand home sales continued to decline, in line with seasonality [4][34]. - For the bond market, short - term implementation of anti - involution policies, price transmission, and the impact of production control on industrial growth are worthy of attention. "Broad credit" disturbances may increase compared to July. Externally, the results of China - US economic and trade negotiations were in line with expectations, and the market reaction was muted. Export resilience remains, but its elasticity is decreasing, and the weakening of "rush exports" may gradually materialize. Internally, the strong futures market last week driven by major infrastructure projects and "anti - involution" led to spot price increases. This week, futures sentiment cooled, and spot demand weakened due to weather conditions. Although industrial product prices generally corrected, they were still higher than before July. In the future, price increase elasticity may be limited in the short term, but the recovery trend is hard to disprove, which may support equity sentiment. Urban renewal may accelerate, and the implementation of policy - based financial instruments is expected. August is the policy effect verification stage, increasing the importance of data observation [4][35]. Summary by Directory Inflation - related - Food prices reversed from a decline to an increase. The wholesale price index of 200 agricultural products and the wholesale price index of basket products increased by 0.05% and 0.03% month - on - month respectively. The average wholesale price of pork decreased by 0.84% month - on - month, while vegetable prices rose, and the decline in fruit prices narrowed [4][10]. Import - Export related - Container shipping prices continued to decline. The CCFI index decreased by 2.3% month - on - month, and the SCFI decreased by 2.6% month - on - month. From July 21st to July 27th, port container throughput and cargo throughput decreased by 6.5% and 4.3% month - on - month respectively, but increased by 11.5% and 13.3% year - on - year. The BDI index decreased by 3.1% month - on - month, and the CDFI index increased by 0.2% month - on - month [12]. Industrial related - The price of thermal coal continued to rise. The price of thermal coal (Q5500) at Qinhuangdao Port increased by 1.4% month - on - month with a narrowing increase. The price of rebar reversed from an increase to a decrease, with a 0.26% month - on - month decline in spot price. The apparent demand for rebar decreased by 6.1% month - on - month, and the year - on - year decline widened to 5.7%. Copper prices decreased month - on - month, affected by the Fed's cautious attitude towards interest rate cuts and the strengthening of the US dollar. Glass prices also reversed from an increase to a decrease as futures market sentiment cooled [14][18][19]. Investment related - Cement prices continued to weaken, with a 1.40% month - on - month decline in the national cement price index and a narrowing decline. In the real estate sector, from July 25th to July 31st, the transaction area of new homes in 30 cities increased by 25% month - on - month but decreased by 15.4% year - on - year. The transaction area of second - hand homes in 17 cities decreased by 4.6% month - on - month but increased by 5.1% year - on - year [20][29]. Consumption - From July 1st to July 27th, passenger car retail sales decreased by 19% month - on - month compared to the same period in June but increased by 9% year - on - year. From July 21st to July 27th, retail sales decreased by 30% month - on - month and increased by 5% year - on - year. Brent and WTI crude oil prices increased by 1.8% and 3.3% month - on - month respectively, boosted by factors such as a trade agreement between the US and Europe and supply - side constraints [30].

Group 1: Investment and Economic Measures - The National Development and Reform Commission (NDRC) has fully allocated the 800 billion yuan "two heavy" construction project list, with 735 billion yuan of central budget investment also largely disbursed [1] - A fourth batch of 690 billion yuan for consumer goods replacement will be allocated in October, completing the annual plan of 300 billion yuan [2] - The NDRC aims to enhance domestic demand and support new consumption development while preventing blind following and excessive competition in emerging sectors [3][4] Group 2: Policy Implementation and Economic Monitoring - The NDRC plans to maintain policy continuity and stability while enhancing flexibility and foresight to stabilize the economy and employment [4] - The NDRC will conduct regular economic monitoring and policy research to ensure timely responses to actual needs [4] - The NDRC is focused on optimizing the artificial intelligence ecosystem and promoting its large-scale commercial application [5][6] Group 3: Logistics and Trade - The logistics cost as a percentage of GDP has decreased to 14%, achieving the lowest level since records began, saving over 130 billion yuan in logistics costs [7] - Trade cooperation with Belt and Road Initiative countries has seen a 4.7% increase in imports and exports, totaling 11.29 trillion yuan in the first half of the year [9] Group 4: Infrastructure and Energy - The highest cross-regional electricity transmission reached 148 million kilowatts, marking a new historical high [10] - The NDRC is working on a plan to deepen the construction of a unified national market, with inter-provincial trade sales accounting for 40.4% of total sales revenue [11][12] Group 5: Market Regulation and Competition - The NDRC is committed to regulating disorderly competition among enterprises and will implement measures to clean up market access barriers [13][15] - The NDRC plans to accelerate the implementation of significant reform measures to enhance economic stability and consumer confidence [15] Group 6: Consumer Services and Economic Growth - The NDRC will focus on enhancing consumer capacity and promoting service consumption in areas such as culture, tourism, and healthcare [16] - The NDRC aims to foster a positive cycle of consumption and investment by improving infrastructure and promoting domestic products [16]

Core Viewpoint - The fiscal policy for the second half of 2025 needs to focus on seven key areas: emphasizing changes in economic development momentum, stabilizing price levels, continuously innovating fiscal efforts, prioritizing livelihood expenditures, accelerating government debt disposal, actively utilizing policy financial tools, and emphasizing the social benefits of fiscal policy [2][10][12]. Fiscal Revenue and Expenditure Status - In the first half of 2025, China's fiscal revenue showed marginal improvement but still faced pressure, with general public budget revenue growth at -0.3% and government fund budget revenue at -2.4%, leading to a combined growth rate of -0.6% [5][6]. - Tax revenue growth was positive for three consecutive months from April to June 2025, with significant contributions from industries such as railway, shipbuilding, and aerospace equipment (32.2% growth) and scientific research services (13.8% growth) [5][17]. - Non-tax revenue showed a rapid decline, with June's non-tax revenue at 518.4 billion yuan, down 3.7% year-on-year, likely due to a high base in 2024 [5][17]. - Central and local public budget revenues exhibited significant divergence, with central general public budget revenue at 48,589 billion yuan (-2.8% growth) and local revenue at 66,977 billion yuan (1.6% growth) [7][18]. Fiscal Expenditure Characteristics - The overall fiscal expenditure growth in the first half of 2025 was below the initial budget target, with general public budget expenditure growth at 3.4% and government fund budget expenditure growth at 30%, leading to a combined growth of 8.9% [8][9]. - Fiscal expenditure showed a clear focus on social welfare, with expenditures in social security, health, and education exceeding budget completion rates [9][20]. - The structure of fiscal expenditure is increasingly tilted towards livelihood support, with social security and low-income group expenditures growing at 6.6%, while infrastructure spending declined by 3.2% [9][20]. Policy Directions for the Second Half of 2025 - The economic development momentum is expected to shift, influenced by external uncertainties such as U.S. tariffs and domestic consumption patterns, necessitating adjustments in fiscal policy [10][11]. - Price stability is crucial, as fluctuations in price levels can significantly impact tax revenue, particularly in a tax system dominated by turnover taxes [10][11]. - There is a need for continued innovation in fiscal policy, with room for expanding fiscal expenditure due to slower-than-expected spending in the first half of 2025 [11][21]. - Emphasis on livelihood expenditures should focus on improving income expectations and wealth perceptions, with potential measures including increasing state-owned enterprise contributions to social security funds [12][21]. - Accelerating government debt disposal and enhancing the quality and scope of debt instruments are essential to stabilize corporate cash flows and stimulate economic activity [12][22]. - The use of policy financial tools should be expanded to direct funds towards key sectors and address market failures [12][22]. - The social benefits of fiscal policy must be prioritized, shifting from a debt-driven growth model to one that emphasizes consumption and domestic demand [13][22].

Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - In the first half of the year, fiscal expenditure was front - loaded, while fiscal revenue was weak. The general budget fiscal deficit increased year - on - year, and the broad fiscal deficit rate was at a relatively high level. In June, the growth rates of general public budget revenue and expenditure both declined, while those of government - funded revenue and expenditure increased significantly. In the second half of the year, the intensity of fiscal expenditure is expected to decline, and policy - based financial instruments are expected to be introduced in the third quarter, while other incremental fiscal policies may need to wait [1][3][4][5]. Summary by Directory 1. First - half Fiscal Operation - **Revenue and Expenditure Growth**: From January to June, the cumulative year - on - year growth rate of broad fiscal revenue was - 0.6%, remaining negative. The year - on - year growth rate of broad fiscal expenditure was 8.9%, indicating front - loaded expenditure. In June, the year - on - year growth rates of broad fiscal revenue and expenditure were 2.8% and 17.6% respectively, showing marginal improvement [9]. - **Budget Completion**: Compared with the annual budget, the revenue side fell short of expectations. The cumulative year - on - year growth rate of general public budget revenue was - 0.3% (the annual budget was + 0.1%), mainly due to the actual - 1.2% growth of tax revenue (the annual budget was + 3.7%) and the 3.7% growth of non - tax revenue (the annual budget was - 14.2%). The cumulative year - on - year growth rate of government bond fund revenue was - 2.4%, and it was still challenging to achieve the 0.7% annual budget growth. On the expenditure side, the growth rate of fiscal expenditure was 3.4%, slightly lower than the 4.4% annual budget growth. The growth rate of government - funded expenditure was 30%, slightly lower than the 23.1% annual budget growth, and its sustainability needs further observation [1][11]. - **Deficit and Debt**: The general budget fiscal deficit in the first half of the year was 2.57 trillion yuan, a year - on - year increase of about 0.5 trillion yuan. Assuming a 4% nominal GDP growth this year, the cumulative broad fiscal deficit rate from January to June was 3.7%, at a relatively high level compared with previous years, similar to 2022, indicating strong support from debt income for fiscal expenditure. The issuance of general treasury bonds, replacement special bonds, and special treasury bonds was front - loaded, and the issuance of special bonds was neutral with an accelerating trend since the end of June [1][2][15]. 2. June Fiscal Data Review - **Revenue Side**: In June, the year - on - year growth rate of general public budget revenue turned negative (- 0.3%), but the structure improved. Tax revenue increased by 1.0% year - on - year, and non - tax revenue decreased by 3.7% year - on - year. Among taxes, personal income tax, domestic VAT, and securities trading stamp duty had relatively high growth rates. The year - on - year growth rate of government - funded revenue was 20.8%, a significant improvement, but its sustainability may be weak due to the continued weak growth of real estate investment [3][22][27]. - **Expenditure Side**: The expenditure intensity of the general public budget decreased, with a year - on - year growth rate of 0.38%. The year - on - year growth rate of government - funded expenditure increased significantly to 79.2%, mainly due to the improvement of government - funded revenue in June and the impact of the issuance of special treasury bonds since April. Structurally, traditional infrastructure expenditure continued to contract, while expenditure on science and technology and social security had relatively high growth rates [3][30]. 3. Outlook for the Second - half Fiscal Situation - **Expenditure Intensity**: The intensity of fiscal expenditure is expected to decline in the second half of the year. The net financing scale of government bonds is expected to decrease. It is estimated that the net financing of local bonds in the third and fourth quarters will be 1.7 trillion yuan and 537.4 billion yuan respectively, and that of treasury bonds will be 1.6 trillion yuan and 1.7 trillion yuan respectively. The net financing of government bonds in the third and fourth quarters will be 3.3 trillion yuan and 2.2 trillion yuan respectively, with a significant year - on - year decrease, which may drag down the year - on - year growth of fiscal expenditure. In addition, the scale of special bonds for project expenditure is also expected to decline in the second half of the year [4][34]. - **Policy Expectations**: The third quarter may enter a policy observation period. Policy - based financial instruments are expected to be introduced, but the timing is uncertain. Other incremental fiscal policies may need to wait until after the introduction of policy - based financial instruments or when the domestic economy weakens [5][41].

Economic Growth Analysis - The actual GDP growth rate for Q2 2025 is 5.2%, with a cumulative growth of 5.3% for the first half of the year, indicating a strong likelihood of achieving the annual target of around 5%[1] - Nominal GDP growth in Q2 is 3.9%, down from 4.6% in Q1, with the GDP deflator index showing a decline of approximately -1.2%[1] - Consumer retail sales increased by 5.0% in the first half, surpassing last year's 3.7% growth, driven by "trade-in" policies[1] Sector Performance - Industrial production saw a significant increase, with June's industrial added value rising to 6.8%, supported by strong external demand and a 5.9% increase in exports[2] - Fixed asset investment growth decreased from 3.7% to 2.8% in June, primarily due to declines in infrastructure and manufacturing investments[4] - The real estate sector showed resilience, with a cumulative sales decline of -3.5% in the first half, significantly better than last year's -19%[1] Consumer Behavior and Trends - Consumer spending growth in Q2 remained stable at 5.2%, with a slight decrease in June due to earlier promotional activities and changing consumption patterns[2] - The "trade-in" program's impact on durable goods consumption is expected to continue supporting consumer spending in the coming months[2] - The income growth rate for residents is 5.3%, consistent with last year's figures, while government revenue growth has improved compared to the previous year[1] Future Economic Outlook - The balance of supply and demand is under pressure, with industrial capacity utilization dropping to its second-lowest level since 2013 at 74%[4] - Key variables for the second half of the year include the evolution of consumer demand, export performance, and real estate sales trends[4] - The effectiveness of new policy measures and financial tools will be crucial in supporting investment and consumption in the latter half of the year[4]

Group 1 - The likelihood of introducing incremental fiscal policies in the second half of the year is low from the perspective of current financial supplementation, but there is a need for new policies to support the weak real estate sector [1] - The probability of implementing policy financial tools is higher within the incremental reserve policies [1] - There is potential for increased intensity and accelerated pace in stabilizing investment, the real estate market, and risk prevention [1] Group 2 - Fiscal spending should continue to focus on "investing in people," particularly in key livelihood areas such as education, healthcare, employment, and elderly care [1]

Group 1 - The national general public budget expenditure progress in the first five months of this year reached the highest level in nearly five years, with a significant increase in fiscal spending to support economic growth and improve people's livelihoods [1] - The issuance of local government special bonds and replacement bonds exceeded 2.1 trillion yuan and 1.7 trillion yuan respectively in the first half of the year, indicating a proactive fiscal policy [1] - The broad fiscal expenditure scale expanded significantly to 14.5 trillion yuan in the first five months, reflecting a year-on-year growth of 6.6%, which is much higher than the revenue growth rate [1] Group 2 - Special bond funds are increasingly diversified, supporting not only infrastructure projects but also revitalizing idle land and stabilizing the real estate market [2] - Fiscal funds have been directed towards social security, education, and healthcare, with significant growth in public finance expenditure in these areas compared to infrastructure spending [2] - The issuance of replacement bonds has nearly reached 90% of the annual target, providing space for economic development through debt restructuring [2] Group 3 - The Ministry of Finance has accelerated the issuance of ultra-long-term special government bonds to support key policies, with a noticeable increase in the issuance pace of special bonds and ultra-long-term bonds since June [3] - There remains over 2 trillion yuan in special bond quotas and 745 billion yuan in ultra-long-term bond quotas available for issuance, indicating ample fiscal resources for stabilizing growth and expanding domestic demand [3] - The likelihood of introducing incremental fiscal policies in the second half of the year is low, but there may be a greater probability of policy financial tools being introduced to support the real estate sector [3] Group 4 - The foundation for the recovery of the Chinese economy needs to be further solidified through effective use of fiscal policies and optimization of expenditure structure [4] - Fiscal spending should focus on "investing in people," emphasizing key areas such as education, healthcare, employment, and elderly care to support human capital [4] - In regions with population inflows, there should be an appropriate expansion of public services, while in outflow regions, resource integration and structural optimization should be prioritized to enhance service efficiency [4]

Investment Rating - The report maintains a "Buy" rating for the banking industry, indicating an expected investment return exceeding 15% over the next 6-12 months compared to the market benchmark index [1]. Core Insights - The liquidity environment in July is characterized by self-driven easing, with market liquidity expected to remain stable despite potential fluctuations at month-end due to stock and bond market interactions [4]. - The People's Bank of China (PBOC) has shifted its monetary policy stance to a more flexible approach, indicating a reduced necessity for further monetary easing in the short term [4]. - The banking sector is facing challenges in balancing volume, price, and risk due to insufficient demand, leading to a decline in net interest margins [5]. - The likelihood of restarting government bond purchases in the short term is low, as the current liquidity conditions do not necessitate such actions [6]. - New structural monetary policy tools are being introduced to support sectors like technology innovation and consumption, which may enhance demand in the banking sector [7][8]. Summary by Sections Monetary Policy and Liquidity - The PBOC's recent meetings suggest a cautious approach to monetary policy, with a focus on utilizing existing policies effectively rather than introducing new easing measures [4]. - The liquidity situation is expected to remain stable in July, with a decrease in government bond supply and reduced reserve requirement pressures benefiting the funding environment [17]. Banking Sector Performance - The banking sector's net interest margin has reached historical lows, with state-owned banks showing particularly low margins, which continues to impact revenue and profitability [5]. - The demand for loans is expected to remain subdued, with banks needing to focus on both demand recovery and cost control to stabilize operations [5]. Government Bond Market - The report anticipates a net financing of approximately 1.1-1.2 trillion yuan in government bonds for July, with a peak in supply expected in August and September [6]. - The current yield curve for government bonds is considered favorable, reducing the urgency for the PBOC to initiate bond purchases [6]. Policy Tools and Investment - The introduction of new policy tools aims to stimulate investment in infrastructure and other key areas, potentially leading to increased credit expansion in the banking sector [7][8]. - Historical data indicates that previous rounds of policy-driven credit expansion have effectively boosted infrastructure investment, suggesting a similar outcome may occur with the new tools [7][8].

Group 1: Fiscal Policy Strengthening - The fiscal policy for 2025 is set to be more proactive, shifting from "moderate increase" in 2024 to "more vigorous" measures in 2025, emphasizing counter-cyclical adjustments to stabilize the economy[5] - The budget deficit rate for 2025 is expected to reach a historical high, with significant increases in government bond issuance and spending intensity[14] - The focus of fiscal resources will be on people's livelihoods, consumption, and new productivity sectors, while also addressing risks in local debts and real estate[14] Group 2: Debt Instruments Expansion - The issuance of special bonds is set to increase to 4.4 trillion yuan in 2025, a 12.8% increase from 3.9 trillion yuan in 2024[21] - The plan includes 5,000 billion yuan in special government bonds to support state-owned banks' capital replenishment, enhancing their risk resistance and credit capacity[17] - The scope of special bonds will expand to include land reserves and the acquisition of existing housing for public welfare, with a shift from a "positive list" to a "negative list" for eligible projects[21] Group 3: Existing and Incremental Policies - Existing policies will be accelerated, with special bonds and long-term special bonds being issued and utilized promptly to enhance effectiveness[39] - The government aims to release the effectiveness of existing policies while reserving space for new incremental policies as needed[39] - New policy financial tools are in preparation to support technology innovation, consumption, and foreign trade, with an estimated scale of around 500 billion yuan expected to leverage investments significantly[7]