Core Viewpoint - In recent years, Chinese export enterprises have shown a clear tendency to "hold foreign exchange without settling." Starting from early 2025, as the RMB enters an appreciation cycle and Chinese assets are revalued, the willingness of enterprises to settle foreign exchange is expected to rebound. The recent RMB exchange rate against the USD has broken through 7.0, and mainstream expectations suggest that the RMB will continue to appreciate, further stimulating enterprises' settlement sentiment and positively impacting liquidity and the market [2][3][12]. Group 1: Settlement Willingness and Scale - The "pending settlement" scale for enterprises is approximately $930 billion, with an expected increase in settlement willingness by 2025. From early 2022 to November 2025, export enterprises accumulated $930 billion in foreign exchange that has not been settled [3][7]. - The settlement rate, which measures the proportion of foreign exchange that enterprises actively convert to RMB, is a good indicator of their willingness to settle. A higher settlement rate indicates stronger willingness [8][10]. - Since early 2025, the settlement rate has improved significantly, rising from a low of 54.4% in February 2025 to a high of 71.2% in September 2025, indicating a shift from "holding foreign exchange" to "steady settlement" [10][11]. Group 2: Factors Influencing Settlement Willingness - Two main factors influence enterprises' willingness to settle: expectations regarding the RMB exchange rate and the comparative returns of holding different currencies. When enterprises expect the RMB to appreciate, they are more inclined to settle early to avoid exchange losses [11][13]. - The attractiveness of RMB assets has increased due to favorable developments in sectors like innovative pharmaceuticals and effective responses to trade tensions, which have boosted risk appetite and improved the performance of Chinese financial assets [13][14]. Group 3: Impact on Liquidity and Market - The settlement of foreign exchange essentially converts foreign assets into RMB deposits, impacting the balance sheets of the central bank, commercial banks, and enterprises. However, the effect on the base currency supply is minimal if commercial banks do not sell the foreign exchange to the central bank [15][20]. - If 20% of the pending settlement is realized by the end of 2026, it could lead to an increase in M1 by approximately 1.3 trillion RMB, contributing about 1.2 percentage points to M1 growth [24][27]. - The increase in M1 is expected to have limited impact on PPI due to insufficient effective demand, and some high-risk enterprises may channel funds into the stock market, providing incremental capital to A-shares [27][28][31].

Group 1: REITs Market Analysis - The recent performance of newly listed REITs has been disappointing, with significant price drops on their debut days, such as the 华夏安博仓储 REIT [2][6] - Factors contributing to this trend include a strong A-share market in the second half of 2025, leading funds to shift from debt-oriented REITs to equity assets, and a rise in interest rates diminishing the relative value of REITs [2][6][7] - The relaxation of the REITs inquiry limit to 25% in June 2025 has increased market pricing dynamics, resulting in narrower valuation spreads between primary and secondary markets, thus compressing profit margins for new REITs [7][8] - The fourth quarter of 2025 is expected to see a peak in the unlocking of strategic investment shares in REITs, which may further pressure the secondary market performance of newly issued REITs [7][9] - C-REITs may present some low-position investment value after continuous adjustments, with defensive sectors like consumption infrastructure and municipal environmental REITs showing resilience due to stable cash flows and policy support [11] Group 2: Fixed Income and Wealth Management - As of December 2025, the total wealth management scale reached 33.2 trillion yuan, reflecting a seasonal decline of 0.7 trillion yuan from the previous month, but an increase of 3.3 trillion yuan year-on-year [12][13] - The average annualized yield for newly issued fixed-income wealth management products slightly rebounded in December 2025, with the upper limit at 2.75% and the lower limit at 2.25% [13] - The bond market is expected to perform better than anticipated in 2026, with a focus on long-term bonds potentially rebounding from oversold conditions [19] Group 3: CPI and Economic Indicators - In December 2025, the Consumer Price Index (CPI) rose by 0.8% year-on-year, marking the highest increase since March 2023, driven significantly by food prices [16][17] - The Producer Price Index (PPI) saw a narrowing decline of -1.9%, with positive month-on-month growth for three consecutive months, indicating price support from upstream industries [16][17] Group 4: Company Overview - Vision Smart - Vision Smart, a leader in the building intelligence sector, has maintained a growth rate of 20% to 30% in its KNX smart control business since 2022, significantly boosting revenue [22][23] - The global market for KNX products is projected to grow at a CAGR of 10.3% from 2025 to 2031, with the Chinese smart home market expected to exceed 1 trillion yuan by 2025 [23][24] - The company has established a strong presence in over 70 countries and regions, with plans to enhance production capacity through a new industrial park project [24][25]

Core Viewpoint - The Producer Price Index (PPI) in December 2025 showed a year-on-year decline of 1.9%, with a narrowing decrease compared to the previous month, while a month-on-month increase of 0.2% was observed, indicating a mixed trend in industrial prices driven by supply-demand dynamics and external factors [1]. Group 1: PPI Trends - The year-on-year PPI decline of 1.9% reflects a narrowing of 0.3 percentage points from the previous month [1]. - The month-on-month PPI increased by 0.2%, which is an expansion of 0.1 percentage points compared to the prior month [1]. Group 2: Price Influences - Improvement in supply-demand structure led to price increases in certain sectors, such as a 1.0% rise in lithium-ion battery manufacturing prices for three consecutive months [1]. - Seasonal demand increases contributed to price rises in gas production and supply (1.2%) and electricity and heat production and supply (1.0%) [1]. - Input factors caused a divergence in prices for non-ferrous metals and oil-related industries, with international crude oil prices leading to declines of 2.3% in domestic oil extraction and 0.9% in refined oil product manufacturing [1]. Group 3: Policy Impact and Sector Performance - Continuous effectiveness of macro policies has resulted in positive price changes in certain industries, with the construction of a unified national market contributing to a narrowing of year-on-year price declines [1]. - The growth of new productive forces has led to price increases in related sectors, including a 9.0% rise in biomass liquid fuel prices, 5.5% in graphite and carbon product manufacturing, 2.4% in integrated circuit finished products, and 0.9% in waste resource recycling [1]. - The effective release of consumer potential has also driven year-on-year price increases in relevant industries [1].

1. Report Industry Investment Rating - The report does not explicitly mention the industry investment rating. 2. Core Viewpoints of the Report - The overall repair trend of December's CPI and PPI readings continued, but the structural differentiation of price indicators was not significantly improved. The core CPI's year - on - year repair momentum may have slowed, and the PPI is expected to turn positive in Q2 [6][14][18]. - The bond market was weak this week. The strong performance of the equity market at the beginning of the year suppressed the bond market. Factors such as the correction of unreasonable interest - rate cut expectations and the lower - than - expected central bank bond - buying scale led to a larger adjustment in the short - and medium - term bonds. However, the impact of the equity market on the bond market weakened marginally towards the weekend [6]. - The factors restricting the bond market's strength still exist, so a relatively cautious judgment is held for the Q1 trend. But there may be short - term trading opportunities in bond futures, and it is recommended to focus on medium - and long - term contracts [7]. 3. Summary by Relevant Catalogs 3.1 First Part: Weekly Core Points Analysis and Strategy Recommendation 3.1.1 Comprehensive Analysis - This week's CPI data met expectations, with food and tobacco prices and precious metal jewelry prices being the main drivers of CPI repair. The core CPI's year - on - year repair momentum may have slowed, and the household appliance prices in the household goods and services sub - item increased strongly [14]. - The PPI data slightly exceeded expectations. The production data prices in the upstream were the main source of PPI repair, while the downstream consumer goods prices had weak repair momentum. The domestic PPI year - on - year is expected to turn positive in Q2 [18][16]. - The strong equity market at the beginning of the year suppressed the bond market, but the impact weakened marginally towards the weekend [24]. - The capital price did not fall further, and the central bank's bond - buying was lower than expected, leading to a relatively large adjustment in the short - and medium - term bonds [26]. 3.1.2 Strategy Recommendation - Unilateral: Try to go long at low prices in the short term [7]. - Arbitrage: Wait and see [7]. 3.2 Second Part: Relevant Data Tracking 3.2.1 Futures Contract Valuation - The IRR of the main contracts of TS, TF, T, and TL were about 1.3126%, 1.4026%, 1.2506%, and 0.7725% respectively. The futures bond valuation was slightly underestimated compared to the spot bonds [36]. 3.2.2 Contract Spreads - The spreads between different contracts of TS, TF, T, and TL are presented in the data [41]. 3.2.3 Trading Volume and Open Interest - The trading volume and open interest data of TS, TF, T, and TL contracts are provided [44]. 3.2.4 Spot Bond Yields and Spreads - The curves of spot bond yields, term spreads, spreads between national bonds and local bonds, and spreads between 10Y national bonds and state - owned development bonds are presented [47]. 3.2.5 US Treasury Yields and Exchange Rates - Data on the US 10 - year Treasury yield, Sino - US 10 - year Treasury spread, US dollar index, and US dollar - offshore RMB exchange rate are provided [50].

Core Insights - The Consumer Price Index (CPI) in December 2025 increased by 0.2% month-on-month and 0.8% year-on-year, while the core CPI, excluding food and energy, rose by 1.2% year-on-year [2] - The Producer Price Index (PPI) rose by 0.2% month-on-month but decreased by 1.9% year-on-year, with a decline of 2.6% for the entire year of 2025 [2] - Analysts predict a moderate recovery in overall prices in 2026, supported by proactive macroeconomic policies and the development of new economic drivers [2] CPI Analysis - The year-on-year increase in CPI in December 2025 was the highest since August 2023, driven primarily by rising vegetable and fruit prices due to adverse weather conditions, as well as the effects of year-end consumption promotion policies [2][3] - Specific price increases included fresh vegetables and fruits, which rose by 18.2% and 4.4% respectively, contributing approximately 0.16 percentage points to the CPI increase [3] - The prices of household appliances and vehicles also saw a month-on-month increase, exceeding market expectations [2] PPI Analysis - The PPI's year-on-year decline narrowed by 0.3 percentage points in December 2025, influenced by rising raw material prices and the effects of policies aimed at reducing excessive competition [4] - The PPI experienced a continuous month-on-month increase for three consecutive months, indicating a potential stabilization in industrial prices [4] - For 2025, the PPI's year-on-year decline was 2.6%, which is a larger drop compared to the previous year, attributed to insufficient external demand and ongoing economic structural adjustments [4] Future Outlook - Experts anticipate that the CPI will see a moderate increase in 2026, potentially around 1.2%, as the effects of growth-stimulating and consumption-promoting policies take hold [7] - The PPI is expected to enter a recovery phase in 2026, with a projected year-on-year decline narrowing to around 0.5%, although a return to positive growth may take longer [4][5] - Measures to ensure the supply and price stability of essential goods are being implemented, with local governments actively working to maintain market stability [6]

Market Performance - The Hang Seng Index (HSI) closed at 26,232, up 0.3% for the day and 2.3% year-to-date (YTD) [1] - The MSCI China index increased by 0.3%, with a YTD gain of 3.0% [1] - The KOSPI index showed a strong performance, rising 0.7% for the day and 8.8% YTD [1] Commodity Prices - Brent Crude oil prices rose to $63 per barrel, reflecting a 2.2% increase for the day and 4.1% YTD [2] - Gold prices reached $4,510 per ounce, up 0.7% for the day and 4.4% YTD [2] - Copper prices increased by 2.2% for the day, with a YTD gain of 4.6%, closing at $12,998 per ton [2] Economic Indicators - The US CPI YoY for December was reported at 2.7%, matching consensus expectations [3] - China's GDP YoY growth was recorded at 4.8%, slightly above the expected 4.5% [3] - The Core CPI in the US remained stable at 2.8% YoY, indicating consistent inflationary pressures [3] Sector Insights - H-share banking stocks are gaining attention from long-term investors, particularly in a low-interest-rate environment [8] - The H-share banking sector is expected to report positive gains in 2026, maintaining an OVERWEIGHT rating [9] - CIMC Enric's green methanol plant is projected to significantly reduce greenhouse gas emissions by 85%, tapping into a new market [12]

Overall Situation: Low-Level Bottoming - In December 2025, the price indicators continued to improve, with CPI year-on-year rising from 0.7% to 0.8%, and PPI narrowing from -2.2% to -1.9% [2][11] - For the year 2025, CPI is expected to be 0%, slightly lower than the 0.2% in 2023 and 2024, while PPI is projected at -2.6%, lower than -2.2% in 2024 [12][11] CPI: From General Weakness to Structural Improvement - CPI was reclassified into categories: food (approx. 19% weight), competitive goods (approx. 26%), competitive services (approx. 19%), rent (approx. 15%), and government-controlled goods and services (approx. 21%) [15][18] - The cumulative CPI growth for 2023-2024 averaged -0.1%, indicating a general price weakness influenced by production capacity cycles and domestic supply-demand imbalances [19][18] - In 2025, CPI cumulative growth is expected to be 0.8%, showing structural improvement, driven by rising prices in food (1.1%) and gold jewelry (68.5%) [20][21] PPI: Accelerated Decline Followed by Stabilization - In the first half of 2025, PPI showed a month-on-month decline of -0.3%, while in the second half, it stabilized with a month-on-month average of 0% [5][23] - The price of various industry chains, particularly in non-ferrous metals, is expected to improve due to macroeconomic factors and domestic capacity management [24][23] Outlook for 2026: Mild Year-on-Year Recovery - CPI and PPI are expected to see mild year-on-year recoveries, with CPI projected at approximately 0.8% and PPI at around -1% [26][27] - Potential drivers for CPI improvement include rising prices in food and competitive goods, particularly gold jewelry, and healthcare services [27][28] December 2025 Inflation Data Review - CPI rose from 0.7% to 0.8%, with food prices increasing from 0.2% to 1.1%, while energy prices fell from -3.4% to -3.8% [29][30] - Core CPI remained stable at 1.2%, with significant increases in gold jewelry prices and household goods [29][30]

Group 1: Report Title and General Information - The report is titled "Industrial Consumer Goods Drive Moderate Price Recovery - December 2025 CPI and PPI Review" [1] - The report was published on January 11, 2026 [10] Group 2: Report Highlights and Core Views - In December 2025, domestic prices improved unexpectedly supported by imported factors and pre - holiday consumption. Core CPI year - on - year growth remained at 1.2%, and the year - on - year decline of PPI narrowed [2] - In 2026, food CPI may still be dragged down by pig prices in the first half of the year, but the service sector is resilient, and the industrial consumer goods sector is supported by the "anti - involution" policy and the international metal price increase cycle. With the low - base effect, prices may continue a moderate recovery. It is neutrally expected that the year - on - year growth rate of PPI will turn positive in the fourth quarter [2] - This year, the bond market may operate in an environment of moderate price recovery. The long - term bond is expected to fluctuate weakly, with the 10 - year Treasury yield expected to fluctuate between 1.8% - 1.9%. The bond market's periodic recovery opportunity may come in the second half of the first quarter [2] Group 3: December 2025 Price Data - In December 2025, CPI rose 0.2% month - on - month and 0.8% year - on - year, with the year - on - year increase expanding by 0.1 percentage points compared with the previous month. Core CPI rose 1.2% year - on - year [7] - In December 2025, PPI rose 0.2% month - on - month and fell 1.9% year - on - year, with the year - on - year decline narrowing by 0.3 percentage points compared with the previous month [7] Group 4: Factors Affecting CPI Core CPI - Industrial consumer goods are the main support for core CPI, while service prices are stable. In December 2025, the year - on - year growth rate of core CPI remained at 1.2% for three consecutive months [11] - The year - on - year growth rate of industrial consumer goods (excluding energy) prices increased to 2.5% for six consecutive months, driving the year - on - year increase of CPI by about 0.63 percentage points. Gold jewelry prices rose 5.6% month - on - month due to rising international gold prices; copper and memory price increases drove household appliances and communication tools to rise 1.4% and 3% month - on - month respectively; the price decline of fuel cars and new - energy cars narrowed to 2.4% and 2.2% year - on - year respectively [11] - Service prices improved steadily, with the year - on - year growth rate slightly falling 0.1 percentage points to 0.6%. Among them, the month - on - month prices of household services and medical services were still stronger than the seasonal average [11] Overall CPI - The increase in food prices drove CPI to continue rising, while energy prices still dragged down CPI. In December 2025, CPI was stronger than the seasonal average month - on - month, and the year - on - year increase expanded by 0.1 percentage points to 0.8%, reaching the highest level since March 2023 [11] - Food prices rose 1.1% year - on - year, with the increase expanding by 0.9 percentage points compared with the previous month, driving the year - on - year increase of CPI by about 0.21 percentage points. Pre - holiday consumption demand pushed up the prices of fresh fruits and shrimps and crabs by 2.6% and 2.5% respectively. The drag of pork and egg prices on the year - on - year CPI decreased, but pig prices may remain low in the first half of this year [11] - Energy prices fell 3.8% year - on - year, with the decline expanding by 0.4 percentage points compared with the previous month. Affected by international oil price changes, domestic gasoline prices fell 1.2% month - on - month, and the year - on - year decline expanded to 8.4% [11] Group 5: Factors Affecting PPI - The continuous implementation of the "anti - involution" policy and the increase in international non - ferrous metal prices drove the month - on - month increase of PPI for three consecutive months, and the year - on - year decline narrowed. In December 2025, the month - on - month growth rate of PPI rebounded for three consecutive months, with the increase expanding by 0.1 percentage points to 0.2%. The year - on - year decline of PPI also narrowed by 0.3 percentage points to - 1.9% [11] - The year - on - year declines of both living materials and production materials narrowed. Production materials rose 0.3% month - on - month, while living materials remained flat month - on - month [11] - With the implementation of the "anti - involution" measures, the supply - demand structure of some industries improved, and the year - on - year price declines of the coal mining and washing, lithium - ion battery manufacturing, and photovoltaic industries narrowed [11] - The increase in international non - ferrous metal prices drove the prices of non - ferrous metal mining and dressing and non - ferrous metal smelting and rolling processing industries to rise 3.7% and 2.8% month - on - month respectively, with the increases expanding by 1.1 and 0.7 percentage points compared with the previous month [11] Group 6: Upstream and Downstream Price Trends - The prices of upstream mining industries continued to rise, while the prices of mid - and downstream industries were stable. The price game may have been transmitted to the downstream. The substantial implementation of the "anti - involution" policy drove the continuous price recovery of industries such as coal and photovoltaic, but some key industries for capacity management did not improve significantly [11] - Among upstream industries, the prices of coal mining and washing and non - ferrous metal mining and dressing increased for many months, while the year - on - year price growth rates of industries such as petroleum, coal and other fuel processing (- 7.9%) and non - metallic mineral products (- 6.8%) were still declining [11] - The month - on - month price growth rates of industries such as general equipment manufacturing, automobile manufacturing, and computer, communication and other electronic equipment manufacturing were basically flat or fluctuated slightly, and the upstream prices of most industries had not been smoothly transmitted to the mid - and downstream raw material processing and manufacturing industries [11] Group 7: Future Outlook - In 2026, food CPI may still be dragged down by pig prices in the first half of the year, but the service sector is resilient, and the industrial consumer goods sector is supported by the "anti - involution" policy and the international metal price increase cycle. With the low - base effect, prices may continue a moderate recovery. It is neutrally expected that the year - on - year growth rate of PPI will turn positive in the fourth quarter [11] - This year, the bond market may operate in an environment of moderate price recovery. The long - term bond is expected to fluctuate weakly, with the 10 - year and 30 - year Treasury yields expected to adjust to around 1.9% and 2.4% respectively. The bond market's periodic recovery opportunity may come in the second half of the first quarter [11]

Group 1: Inflation Overview - In December 2025, CPI increased year-on-year from 0.7% to 0.8%, while core CPI remained stable at 1.2%[2] - PPI narrowed its year-on-year decline from -2.2% to -1.9%[2] - The GDP deflator index for Q4 2025 is expected to be around -0.4%, with earlier quarters at -0.8%, -1.2%, and -1%[2] Group 2: CPI Analysis - The cumulative CPI increase for 2025 is 0.8%, a significant recovery compared to the average -0.1% in 2023-24[5] - Food prices rose by 1.1% in 2025, driven by increases in fruits, vegetables, and beef[5] - Gold jewelry prices surged by 68.5%, contributing to the overall CPI improvement[5] Group 3: PPI Trends - In the first half of 2025, PPI experienced a monthly average decline of -0.3%, compared to -0.2% in 2023 and 2024[6] - The second half of 2025 saw PPI stabilize with a monthly average of 0%, indicating a recovery in various industry chains[6] - Factors influencing PPI include global recession fears due to U.S. tariff policies and ongoing adjustments in the domestic real estate market[6] Group 4: 2026 Outlook - CPI is projected to rise by approximately 0.8% in 2026, with a technical adjustment of 0.1 percentage points due to base effects[10] - PPI is expected to decline by about -1%, with an upward adjustment of 0.4 percentage points due to price increases in the non-ferrous sector[10] - Potential upward risks for CPI include increased consumer subsidies and improved service supply in the economy[10]

Core Insights - The Consumer Price Index (CPI) for December 2025 is projected to increase by 0.8% year-on-year, while the Producer Price Index (PPI) is expected to decline by 2.6% year-on-year, indicating a mixed economic outlook for 2025 [1][2][3] CPI Analysis - CPI has shown a continuous recovery for four months, reaching a new high since March 2023, with core CPI remaining above 1% for the same duration [1][2] - In December, the CPI increased by 0.1 percentage points to 0.8%, driven by rising food and core consumer goods prices, while energy prices remained weak [6][7] - The annual CPI for 2025 is expected to average around 0%, the lowest level since 2009, primarily due to weak food and energy prices [3][4] PPI Analysis - The PPI for December is projected at -1.9%, with a narrowing decline compared to the previous month, and a month-on-month increase of 0.2% [3][12] - The annual PPI for 2025 is expected to average -2.6%, the second-lowest since 2016, influenced by weak demand and excess capacity in various sectors [4][5] - Key drivers for PPI include the recovery in the non-ferrous metals sector and the impact of "anti-involution" policies, while the oil and petrochemical sectors continue to exert downward pressure [12][13] 2026 Outlook - For 2026, CPI is forecasted to slightly increase to 0.7%, supported by policies such as "old-for-new" exchanges and rising gold prices, while PPI is expected to stabilize at -0.4% [5][6] - Factors influencing the 2026 outlook include potential price increases in coal, steel, and lithium due to demand from energy storage and AI-related sectors [6][12]