Core Viewpoint - The macroeconomic data for December 2025 indicates a stable recovery in the economy, with rising prices in non-ferrous metals, a return of the manufacturing PMI to the expansion zone, and growth in medium to long-term corporate loans. However, the economic environment for small and medium-sized enterprises remains challenging, and the real estate market continues to exert significant downward pressure on prices and investments [1]. Group 1: Inflation and Price Indices - The Consumer Price Index (CPI) increased from 0.7% to 0.8% year-on-year, with food CPI rising 1.1% year-on-year, marking a continuous five-month growth [4][2]. - The Producer Price Index (PPI) improved from -2.2% to -1.9% year-on-year, reflecting a narrowing decline in industrial product prices due to rising raw material costs and the impact of policies aimed at reducing excess capacity [7][5]. Group 2: Manufacturing and Investment - The Manufacturing Purchasing Managers' Index (PMI) rose from 49.2% to 50.1%, indicating a return to expansion for large enterprises, while small enterprises remain in a contraction zone [10][8]. - Fixed asset investment decreased by 3.8% year-on-year, with real estate investment down 17.2%, while equipment renewal investment grew by 11.8%, supported by policy initiatives [14][11]. Group 3: Credit and Money Supply - New RMB loans totaled 910 billion yuan in December, with medium to long-term corporate loans increasing by 330 billion yuan, driven by recent policy financial tools [17][15]. - The M2 money supply growth rate rose to 8.5% year-on-year, indicating a significant rebound, primarily due to a reduction in non-bank deposits [20][18].

Group 1 - The latest financial data shows that by the end of December 2025, the broad money supply (M2) reached 340.29 trillion yuan, an increase of 8.5% year-on-year, while the narrow money supply (M1) was 115.51 trillion yuan, up 3.8% year-on-year [1] - M1 represents the money that is readily available for spending, indicating an increase in consumer spending power and market activity, while M2 reflects the overall increase in money supply and liquidity in the economy [2] - The "scissor difference" between M2 and M1 has been a focal point for the market; a widening gap suggests that businesses are opting to deposit funds in banks rather than invest, indicating a decline in investment willingness amid economic pressures [3] Group 2 - The narrowing of the "scissor difference" observed since last year indicates a reduction in corporate demand for liquid deposits, suggesting increased investment activities and a positive economic outlook [3]

Core Viewpoint - The Producer Price Index (PPI) in China has shown a zero increase over the past 15 years, despite a significant GDP growth of 250% during the same period, indicating a persistent weakness in producer prices and underlying demand issues [3][4][41]. Group 1: PPI Trends and Historical Context - The PPI has been in a negative growth phase since October 2021, marking 39 consecutive months of year-on-year decline by December 2025 [1]. - From 2012 to 2025, there were 111 months of negative PPI, indicating that two-thirds of this period experienced deflation in producer prices [1][4]. - The PPI index, set at 100 in December 2010, remained unchanged at 100 by December 2025, reflecting no price increase over 15 years [1][4]. Group 2: Economic Growth vs. PPI - China's GDP grew from less than 40 trillion yuan in 2010 to over 140 trillion yuan by 2025, a 2.5 times increase, while the broad money supply (M2) increased 3.68 times during the same period [4]. - Despite significant economic growth, the PPI's lack of increase raises questions about the underlying demand and pricing power within the economy [4][41]. Group 3: Factors Influencing PPI - The PPI's long-term decline is attributed to weak demand, particularly after the peak of the real estate market in 2021, which has affected both upstream and downstream price transmission [39][41]. - The relationship between real estate investment and PPI indicates that a downturn in real estate correlates with a decline in producer prices, as seen in historical data [34][41]. - The inability of upstream price changes to effectively transmit to downstream prices is exacerbated by high competition in the downstream sectors and insufficient demand [20][39]. Group 4: External Influences and Export Dynamics - Export dynamics play a crucial role in influencing midstream product prices, with a significant portion of manufacturing exports being affected by global demand fluctuations [24][26]. - The export price index has seen a notable decline, indicating that reliance on price competition to maintain export volumes may not be sustainable [26][28]. - The overall weak demand in the domestic market, particularly in the context of real estate and consumer confidence, has further constrained PPI recovery [28][39]. Group 5: Recommendations for Economic Policy - To address the persistent weakness in PPI, it is essential to adjust the supply-demand relationship by expanding effective demand, particularly through increasing the income of middle and low-income groups [41][49]. - Stabilizing the real estate market is suggested as a means to support consumer spending and alleviate overcapacity issues in various industries [41][49]. - The focus should shift towards enhancing consumer income through government policies, which may involve restructuring fiscal spending to prioritize direct transfers to households [41][49].

Investment Rating - The industry investment rating is "Outperform the Market" [5][24]. Core Insights - The report indicates a slight decline in the growth rate of social financing (社融) to 8.3% year-on-year as of December, with a month-on-month decrease of 0.2% [6][9]. - The report highlights a divergence in financing between households and enterprises, with household loans decreasing by 916 billion yuan in December, while enterprise loans increased by 1.07 trillion yuan [15][10]. - The People's Bank of China announced a 0.25 percentage point reduction in various structural monetary policy tool rates on January 15, 2026, indicating a focus on maintaining moderate monetary easing while emphasizing structural adjustments [20][4]. Summary by Sections Social Financing - In December, social financing increased by 2.21 trillion yuan, which is a year-on-year decrease of 600 billion yuan, primarily due to a reduction in government bonds [9][6]. - The total social financing stock reached 442.12 trillion yuan by the end of December, with a year-on-year growth rate of 8.3% [9][6]. Loan Data - As of December, the balance of RMB loans was 271.9 trillion yuan, reflecting a year-on-year growth of 6.3% but a month-on-month decline of 0.1% [14][3]. - The report notes that short-term loans for households decreased by 1.023 trillion yuan, while medium- to long-term loans increased by 100 billion yuan [15][10]. Monetary Aggregates - M2 grew by 8.5% year-on-year in December, with a month-on-month increase of 0.5%, while M1's growth rate was 3.8%, showing a month-on-month decline of 1.1% [19][4]. - New RMB deposits in December amounted to 1.68 trillion yuan, which is an increase of 3.08 trillion yuan year-on-year, with a year-on-year growth rate of 8.7% [19][4]. Investment Strategy - The report anticipates that the overall revenue and net profit growth rates for listed banks will stabilize in 2025 and 2026, supported by strong risk compensation capabilities [20][4]. - The current dividend yield in the banking sector remains attractive, suggesting that long-term capital will continue to allocate towards the banking sector, which will help solidify the valuation floor [20][4].

Group 1: Credit Performance - Corporate credit outperformed household credit in December 2025, with significant increases in short-term and medium-to-long-term loans compared to the same period in 2024[4] - Household sector continued to deleverage, with a net repayment in short-term loans and only 10 billion yuan in new medium-to-long-term loans, primarily due to poor real estate sales and decreased willingness to consume[4][21] - Overall, the total social financing scale increased by 3.34 trillion yuan year-on-year, reaching 35.6 trillion yuan for the entire year[13] Group 2: Monetary Supply and Deposits - M2 growth rate improved to 8.5% year-on-year in December 2025, up from 8% in November[13] - Non-bank financial institutions saw better deposit performance compared to 2024, influenced by regulatory changes in interbank deposit rates[5][23] - New household deposits exceeded those of 2024, indicating limited scale of deposit migration[5][24] Group 3: Future Outlook and Risks - Future positive factors include continued support from policy financial tools, proactive government bond financing, and structural interest rate cuts, with expectations for social financing growth to stabilize or slightly increase[6] - Risks include unexpected changes in the economic environment and policy adjustments that could impact market risk appetite and bond market dynamics[7][30]

Group 1: Loan Growth - In December 2025, new short-term loans for enterprises increased by CNY 370 billion, a year-on-year increase of CNY 390 billion, significantly exceeding seasonal expectations[12] - New medium and long-term loans for enterprises amounted to CNY 330 billion, a year-on-year increase of CNY 290 billion, showing improvement partly due to a low base in 2024[12] - The overall new social financing in December was CNY 22,075 billion, a year-on-year decrease of CNY 6,462 billion, aligning with seasonal patterns[5] Group 2: Deposit Growth - M2 growth rate increased by 0.5 percentage points to 8.5% year-on-year, exceeding market expectations[26] - New RMB deposits in December reached CNY 16,800 billion, a year-on-year increase of CNY 30,800 billion, indicating a reverse seasonal growth[26] - Non-bank deposits contributed significantly to the deposit increase, with a net decrease of CNY 330 billion in December, which was a year-on-year improvement of CNY 28,400 billion[28] Group 3: Future Outlook and Risks - It is expected that enterprise credit will improve at the beginning of 2026, driven by policies aimed at stabilizing investment[29] - Risks include potential underperformance of domestic policy effects, uncertainties in investment behavior, and unexpected changes in overseas policies and geopolitical situations[32]

Investment Rating - The report maintains a "Recommended" rating for the banking industry [1] Core Insights - The banking sector is experiencing a marginal recovery in medium to long-term loans, with a focus on the effectiveness of policy measures being released [1] - Social financing (社融) has shown a year-on-year decrease, with a month-on-month decline in growth rate. In December, new social financing amounted to 2.21 trillion yuan, a year-on-year decrease of 645.7 billion yuan [5] - The growth of RMB loans and corporate bonds has made a significant positive contribution to social financing increment, with RMB loans increasing by 975.7 billion yuan in December, a year-on-year increase of 135.5 billion yuan [5] - Corporate loans have shown a notable increase, with a total increase of 1.1 trillion yuan in December, a year-on-year increase of 580 billion yuan, indicating a marginal recovery in financing demand from the real economy [5] - The M2 growth rate has risen, with M1 and M2 increasing by 3.8% and 8.5% year-on-year, respectively [5] - The report suggests that the government bond's contribution to social financing has weakened towards the end of the year, while RMB credit shows signs of marginal improvement, primarily supported by corporate loans [5] Summary by Sections Social Financing - In December, the total social financing stock increased by 8.3% year-on-year, with a month-on-month decline of 0.2 percentage points [5] - The structure of corporate loans has improved, with medium to long-term loans increasing by 330 billion yuan and short-term loans by 370 billion yuan [5] Loan Data - As of the end of December, the balance of RMB loans from financial institutions increased by 6.4% year-on-year, remaining stable compared to the previous month [5] - The demand for loans from the household sector remains weak, with a decrease of 916 billion yuan in December, a year-on-year decrease of 4.416 trillion yuan [5] Investment Recommendations - The report emphasizes the continued attractiveness of the banking sector's dividend value, recommending specific banks such as Industrial and Commercial Bank of China, Agricultural Bank of China, and others [5]

Group 1 - The central bank released financial statistics for 2026, indicating that the total social financing scale increased by 35.6 trillion yuan in 2025, which is 3.34 trillion yuan more than the previous year [1][5] - As of the end of December, the M2 balance was 340.29 trillion yuan, showing a year-on-year increase of 8.5%, while the M1 balance was 115.51 trillion yuan, up 3.8% year-on-year [1][5] - The year-on-year growth of RMB loans was 6.2%, and deposits increased by 8.7% [1][5] Group 2 - M1 growth is slowing down, with a decrease from 4.9% to 3.8% by the end of December, while M2 growth rebounded to 8.5% [1][5] - The M2-M1 differential increased to 4.7%, indicating a decline in corporate demand for current deposits and an increase in time deposits, reflecting a potential decrease in economic activity [1][5] - The growth rate of social financing stock fell to 8.3% by the end of December, maintaining a historical low, with government bonds significantly outpacing corporate bonds in the financing structure [1][5] Group 3 - The People's Bank of China announced a 0.25 percentage point reduction in the rates of structural monetary policy tools such as re-lending and rediscounting [2][6] - This move aims to lower the cost for financial institutions to obtain funds from the central bank, guiding credit flow to key areas for economic structural transformation [2][6] - There is potential for further reductions in reserve requirements and interest rates this year [2][6]

Core Insights - The financial data for 2025 indicates a steady growth in monetary credit and an optimized structure, reflecting the effectiveness of financial supply-side structural reforms [1][2] Group 1: Monetary and Credit Growth - By the end of 2025, the total social financing scale reached 442.12 trillion yuan, a year-on-year increase of 8.3% [1] - The balance of RMB loans was 271.91 trillion yuan, growing by 6.4% year-on-year [4] - The broad money (M2) balance stood at 340.29 trillion yuan, with an annual growth rate of 8.5% [1] Group 2: Support for the Real Economy - The growth rates of social financing and M2 were significantly higher than the economic growth target set at the beginning of the year, providing strong support for economic growth [2] - Government bond financing contributed nearly 40% to the new social financing, highlighting the collaboration between fiscal and monetary policies [2] - Direct financing accounted for 46.9% of the social financing scale increment, a rise of 7.8 percentage points compared to 2020 [2][3] Group 3: Financing Structure and Costs - In 2025, direct financing increased by 16.7 trillion yuan, with corporate bond net financing reaching 2.39 trillion yuan, up by 482.5 billion yuan year-on-year [3] - The average interest rates for newly issued corporate loans and personal housing loans were around 3.1%, marking a decline of 2.5 and 2.6 percentage points since the second half of 2018 [4][5] - The financing costs in key sectors such as technology and digital economy saw significant reductions, with new loan rates for technology at 2.81%, down 0.32 percentage points year-on-year [5] Group 4: Deposit Growth - In 2025, RMB deposits increased by 26.41 trillion yuan, with household deposits growing by 14.6 trillion yuan, an increase of 381.2 billion yuan year-on-year [5] - Non-financial corporate deposits rose by 2.3 trillion yuan, up by 2.6 trillion yuan compared to the previous year [5] - Deposits from non-bank financial institutions also saw a significant increase, adding 6.4 trillion yuan, which is 3.8 trillion yuan more than the previous year [5]

Monetary Policy Insights - The central bank has announced an increase in structural monetary policy tools while indicating that there is still room for both reserve requirement ratio (RRR) cuts and interest rate reductions, maintaining a cautious approach towards broad monetary easing [2] - Structural interest rate cuts are aimed at reducing costs for banks and creating conditions for future policy rate reductions, with a potential RRR cut expected in the first quarter [2][3] Financial Data Overview - In December, the year-on-year growth of M1 continued to decline, while M2 growth rebounded, primarily due to increased fiscal spending at year-end and a shift of government deposits to residents and enterprises [2][9] - Social financing in December showed a decrease of 646.2 billion yuan year-on-year, with government bonds being the main drag on this decline [6] Loan Dynamics - December saw a total of 9.1 trillion yuan in new RMB loans, with improvements mainly from the corporate sector, while the residential sector continued to show weakness with a reduction of 916 billion yuan in loans [8] - The corporate sector's loans increased by 1.1 trillion yuan, with short-term loans rising by 370 billion yuan and medium to long-term loans increasing by 330 billion yuan [8] Structural Policy Adjustments - The central bank has implemented a series of structural monetary policy adjustments, including a 0.25% reduction in various structural monetary policy tool rates and an increase in specific loan quotas for agriculture, small enterprises, and technological innovation [3] - A new 1 trillion yuan loan quota has been established for private enterprises, along with expanded support for carbon reduction and service consumption [3] Deposit Trends - In December, M2 year-on-year growth rebounded to 8.5%, with a notable increase in household deposits by 2.6 trillion yuan, while corporate deposits saw a rise of 1.2 trillion yuan [9] - The gap between M2 and M1 growth rates widened to 4.7%, indicating a decrease in the liquidity of funds [9]