1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In Q1 2025, the issuance and net financing scale of urban investment bonds hit a three - year low. The policy tightening forces urban investment companies to make "real transformations". The debt pressure of urban investment companies may be further relieved, and there is still room for compression of credit spreads [4][14]. - With the implementation of the "6 + 4+2" debt - resolution package, the credit risk of urban investment has slightly converged. It is recommended to invest in high - quality enterprises in strong regions and selectively sink the credit quality to seek the spread compression space [6][13]. - In the future, the borrowing - new - to - repay - old ratio of urban investment bonds will remain high, and the level of financing entities may continue to move up. Attention should be paid to issues such as local investment and financing needs, debt repayment pressure, asset idleness, and transformation authenticity [7][9]. 3. Summary According to Relevant Catalogs 3.1 Q1 2025 Review of Urban Investment Bond Market Operation 3.1.1 Five Characteristics of Urban Investment Bond Market Operation - **Issuance and net financing scale at a three - year low**: The issuance scale was 1.48 trillion yuan, a year - on - year decrease of 15.13%. The net financing was 75.105 billion yuan, a year - on - year decrease of 46.76%. The net financing of low - level and weak - quality entities declined significantly. Some urban investment companies turned to overseas bond issuance, with the new issuance increasing by 9.49% year - on - year [4]. - **Overall decline in issuance interest rates but monthly increase within the quarter**: The weighted average issuance interest rate was 2.45%, a year - on - year decrease of 0.54 percentage points. The decline of weak - quality entities was less than that of stronger ones [4]. - **Long - term issuance and increased reliance on borrowing new to repay old**: The weighted average term increased by 0.29 years to 3.77 years. The proportion of medium - term notes continued to rise. The broad and narrow borrowing - new - to - repay - old ratios reached 97.65% and 94.66% respectively [5]. - **Trading contraction and spread compression**: The trading scale decreased by nearly 20% year - on - year, and the trading spread was further compressed compared with the end of 2024 [5]. - **Improvement in net financing in key areas**: The net financing in key areas turned positive year - on - year and quarter - on - quarter. 17 provinces had a 100% borrowing - new - to - repay - old ratio, and Jilin and Chongqing issued project - construction urban investment bonds [5][39]. 3.1.2 Credit Situation - **Convergence of credit risk**: No non - standard defaults occurred in Q1. The number of commercial paper overdue times decreased year - on - year. Two companies in Jiangsu and Guangdong had their credit ratings upgraded. The number and scale of abnormal transactions decreased significantly year - on - year, with frequent abnormal transactions in Shandong and Guizhou [6]. 3.1.3 Issuance Forecast - It is expected that the issuance scale from April to December will be about 4.4 trillion yuan. The borrowing - new - to - repay - old ratio will remain high, and the level of financing entities may continue to move up. There may be months with negative net financing, and the total net financing scale is about 0.025 trillion yuan [7]. 3.2 Follow - up Concerns - **Local investment and financing needs**: Although there are marginal improvements in local investment and financing, the pressure on new financing is still high. It is necessary to optimize financing policies and support the opening of new investment spaces [9]. - **Debt repayment pressure**: A large amount of debt still needs to be resolved independently. Hidden - debt - related interest and government arrears should be reasonably included in the replacement scope [10]. - **Asset idleness**: Urban investment companies have a large amount of idle land assets. They should seize the opportunity of special bonds for land acquisition and adopt various ways to revitalize the assets [11]. - **Transformation authenticity**: The next two years are the critical period for transformation. Attention should be paid to the authenticity of transformation and the risk of the withdrawal of debt - resolution policies after exiting the platform [12]. 3.3 Urban Investment Bond Strategy - It is recommended to invest in high - quality enterprises in strong regions based on fundamentals to obtain coupon income. Selectively sink the credit quality, such as weak urban investment in strong regions and strong urban investment in weak regions, to seek the spread compression space brought by debt - resolution results [13].

Core Viewpoint - The Chinese credit market is experiencing a significant shift as credit risks and spreads have reached historical lows, driven by a combination of value imbalance, policy changes, and debt cycle dynamics [1][2]. Group 1: Value Imbalance - The ratio of credit spreads to LPR spreads fell below 50% in the second half of 2024, leading to a disappearance of capital gain expectations [1]. - Institutional investors, such as banks and insurance companies, are shifting towards long-term interest rate bonds due to the imbalance in value, resulting in a sharp adjustment in the credit bond market [1]. - This institutional behavior has intensified the differentiation within the credit market, highlighting the severe inadequacy of overall credit spread value [1]. Group 2: Policy Dynamics - Since the initiation of the debt reduction policy in 2015, credit spreads have been on a long-term decline, but the policy focus has shifted towards urban investment transformation rather than debt reduction itself as of September 2024 [2]. - The next three years will see the completion of implicit debt replacement, leading to a reduction in policy support and a transition into a policy bottom phase for the credit market [2]. - The decrease in debt reduction funds and the advancement of urban investment transformation are gradually diminishing the factors that mitigate credit risk, necessitating attention to the survival pressures of tail-end entities [2]. Group 3: Debt Cycle Context - In the context of a global debt crisis, China has adjusted earlier due to pressures from real estate and local government debt, with credit risk pricing at historical lows [2]. - However, the pressures from external demand contraction and urban investment transformation are increasing actual tail-end risks [2]. - As the largest industrial nation globally, China’s reliance on external demand is facing challenges, while the push for urban investment transformation exacerbates credit risks for tail-end entities [2].

Core Viewpoint - The recent revision of the Shanghai Stock Exchange's "Guidelines for the Review of Corporate Bond Issuance and Listing" introduces stricter requirements for local government financing vehicles (LGFVs), aiming to enhance transparency and promote genuine transformation in the industry [1][3][4]. Group 1: Regulatory Changes - The revised guidelines expand the number of clauses from 56 to 66, introducing new requirements for the disclosure of the "335" indicators, which limit non-operating assets and income to 30% and government subsidies to 50% of net profit [1][4]. - The guidelines require LGFVs to disclose their asset structure, income structure, and profit structure, marking the first formal acknowledgment of the "335" indicators in public documents [4][6]. - The new rules aim to guide LGFVs towards market-oriented transformation and reduce reliance on government resources, thereby improving profitability and debt repayment capabilities [3][7]. Group 2: Market Impact - As of April 2025, the total scale of canceled corporate bond issuances reached 19.815 billion, with local state-owned enterprises accounting for 88.95% of these cancellations [2]. - In the first quarter of 2025, LGFV bond issuance dropped to 15.762 billion, a year-on-year decrease of 13.7%, while net financing fell by 30.2% [2][5]. - The number of first-time issuers among LGFVs decreased by 18 compared to the same period last year, indicating a more cautious approach to bond issuance [2]. Group 3: Trade Business and Risks - The revised guidelines emphasize the need for LGFVs to disclose the rationality and authenticity of their trade business, addressing issues of "pseudo-trade" practices that have emerged in the industry [6][7]. - There are concerns regarding the authenticity of trade operations, with some LGFVs engaging in non-standard practices such as financing trade and "empty transfers" to inflate revenue [7][8]. - The guidelines require LGFVs with significant trade operations to disclose key customer and supplier information, accounting methods, and the commercial rationale behind their trade activities [7][8].