Economic Indicators - In August, the Manufacturing Purchasing Managers' Index (PMI) was 49.4%, the Non-Manufacturing Business Activity Index was 50.3%, and the Composite PMI Output Index was 50.5%, showing a slight increase from the previous month [1][2] - The Manufacturing PMI has been below the critical line for five consecutive months, indicating ongoing economic downward pressure [1] Manufacturing Sector - The production index rose to 50.8%, up 0.3 percentage points from last month, while the new orders index increased to 49.5%, up 0.1 percentage points [2] - The recovery in manufacturing is attributed to the easing of adverse weather conditions and the resumption of the third batch of "national subsidies" for durable consumer goods [2][3] - The prices of major raw materials and factory output prices rose to 53.3% and 49.1%, respectively, indicating a continuous improvement in manufacturing market prices [2][3] Service Sector - The Non-Manufacturing Business Activity Index increased to 50.3%, with the service sector index reaching 50.5%, marking a significant recovery [4] - The summer consumption effect has positively impacted sectors such as transportation and hospitality, with related indices remaining above 60.0% [4][5] - The business activity expectation index for the service sector rose to 57.0%, indicating optimism among service enterprises regarding market prospects [5] Construction Sector - The construction sector's business activity index declined due to ongoing rainy weather, although it remains above 53%, indicating sustained growth in infrastructure-related activities [5] - The construction PMI is expected to rise into the expansion zone as weather conditions improve and growth stabilization policies take effect [5]

Group 1 - The core viewpoint of the article is that despite market concerns about consumer recovery, Zhang Kun remains optimistic and challenges the prevailing pessimistic expectations [1][2][3] - Zhang Kun's funds have shown a high turnover rate in hidden heavy stocks, with the E Fund Quality Enterprises Three-Year Fund completely changing its holdings compared to the end of last year [1][5] - New additions to the hidden heavy stock list for the first half of the year include Meituan-W, Beike-W, and SF Holding, while companies like Samsonite and Giant Bio have exited [2][6][7] Group 2 - The report indicates a significant divergence in stock market performance across sectors, with defense, banking, and non-ferrous metals performing well, while real estate, food and beverage, and coal lagged [2] - Zhang Kun argues that the current pessimistic expectations regarding domestic demand are debatable, citing a substantial portion of his funds' holdings in domestic demand-related assets [2][3] - The report highlights that consumer confidence has been affected by declining real estate prices and persistent downward pressure on prices, impacting consumer willingness to spend [3][4] Group 3 - Zhang Kun emphasizes that the increase in preventive savings among residents has partially crowded out consumer spending, and consumer confidence indices have shown a downward trend [3][4] - Data shows that per capita disposable income in China has grown at a compound annual growth rate of 6.4% from 2020 to 2024, while total household deposits have increased significantly [3][4] - Zhang Kun believes that the development of high-value-added industries will eventually lead to higher wages and improved living standards for the public, which will positively influence domestic demand [4]

Core Viewpoint - Zhang Kun, a prominent fund manager, significantly reduced his holdings in Meituan while establishing positions in several potential stocks, indicating a strategic shift in investment focus amidst a pessimistic market outlook on domestic demand [3][14]. Fund Holdings Summary - In the first half of 2025, the E Fund Blue Chip Select Fund held 42 stocks, increasing by one from the end of 2024, with notable increases in liquor stocks such as Wuliangye and Moutai, while Meituan dropped out of the top ten holdings [4][8]. - The top ten holdings of the E Fund Blue Chip Select Fund included Tencent, Wuliangye, and JD Health, with Meituan falling to the 12th position after a reduction of 3 million shares [4][6]. - The E Fund Quality Enterprise Three-Year Holding Fund also significantly reduced its Meituan holdings by 54.08%, while initiating positions in stocks like Beike and Junwei Electronics [7][8]. New Investments - Zhang Kun's funds initiated positions in several new stocks, including Beike, Interactive Brokers, Tencent Music, and Junwei Electronics, reflecting a diversification strategy [3][11]. - The E Fund Quality Select Fund also added new positions in stocks like NetEase and Haitian Flavoring, indicating a broader investment strategy [9][10]. Market Outlook - Zhang Kun expressed skepticism about the prevailing pessimistic views on domestic demand, citing strong growth in disposable income and savings among residents as indicators of potential consumer spending recovery [14][15]. - The analysis highlighted that the increase in savings and the disparity between savings and loans could lead to a positive feedback loop in domestic demand, ultimately improving consumer confidence [14][15].

Revenue Insights - In July, general public budget revenue reached 2.03 trillion, marking a year-on-year increase of 0.1%, the first positive growth since the beginning of the year[3] - Monthly revenue growth rebounded significantly by 3.0 percentage points to a new high of 2.6%[3] - Tax revenue increased by 4.0 percentage points to 5.0%, the highest monthly figure since December of the previous year[3] Tax Contributions - The contribution of stamp duty saw a notable improvement, significantly influenced by favorable capital market performance in July[3] - Non-tax revenue continued to decline, with a year-on-year drop of 12.9%, exacerbating the overall revenue growth pressure[3] - Value-added tax contribution fell by 0.1 percentage points, highlighting ongoing domestic demand weakness and low inflation impact on corporate revenues[3] Fiscal Expenditure and Gaps - Fiscal expenditure in July rose by 2.7 percentage points to 3.0%, with most major expenditure areas showing varying degrees of increase[12] - The budget revenue-expenditure gap narrowed slightly to 2.49 trillion, but remains substantial, necessitating continued government bond financing[12] - Cumulative fiscal deficit from January to July expanded by 1.83 trillion, with government debt financing reaching 67.1% of the annual plan, significantly higher than the previous two years[26] Real Estate and Land Revenue - Government fund budget revenue fell sharply by 11.9% year-on-year to 8.9%, primarily due to a 14.7% drop in land transfer revenue[18] - The contribution of land transfer revenue to government fund budget revenue decreased by 11.1 percentage points to 5.3%[18] - The real estate market remains unstable, with significant imbalances in housing price-to-income ratios in major cities, affecting land market activity[18] Future Outlook - If domestic and external demand continues to decline, there is a pressing need for the central government to adopt a more aggressive fiscal expansion strategy[26] - The potential impact of new tariffs from the U.S. on exports necessitates ongoing monitoring of economic indicators[26] - The overall economic environment suggests that substantial improvements in fiscal revenue are unlikely in the coming months[3]

Market Overview - A-shares experienced an upward trend last week, with major indices rising and trading volume remaining high [1] - Among the 31 Shenwan first-level industries, communication, electronics, and non-bank financials performed relatively well [1] Macro Data Analysis - In July 2025, the central bank reported a decrease in new RMB loans by 50 billion, against a market expectation of a decrease of 15 billion, with a previous value of 22,400 billion [4] - The total social financing scale was 11,600 billion, below the market expectation of 14,100 billion and significantly lower than the previous value of 41,993 billion [4] - M2 year-on-year growth was 8.8%, exceeding the market expectation of 8.3% [4] - A notable increase in government bond financing by 12,440 billion year-on-year, indicating a strong driving force [4] - A significant decline in household deposits by 11,100 billion year-on-year, suggesting a trend of "deposit migration" [4] Economic Indicators - The industrial added value for July increased by 5.7% year-on-year, but decreased by 1.1 percentage points month-on-month [5] - Retail sales for July reached 3.9 trillion, with a year-on-year increase of 3.7%, but also a month-on-month decline of 1.1 percentage points [5] - Fixed asset investment from January to July grew by 1.6% year-on-year, a decrease of 1.2 percentage points compared to the first half of the year [5] - Manufacturing investment saw a cumulative year-on-year decline of 6.2%, marking four consecutive months of slowdown [6] Market Strategy Outlook - The market showed strong fluctuations last week, with liquidity remaining ample and a bullish sentiment prevailing [7] - The current two-margin balance as a percentage of total A-share market capitalization is 2.08%, significantly lower than the 5% seen in 2015 [7] - Despite concerns over potential economic downturns in Q3, the supportive monetary policy and low-interest environment continue to foster liquidity [7] Long-term Perspectives - The long-term dynamics of the US-China relationship have been established, with international capital markets questioning the US government's governance capabilities [8] - Opportunities may arise in domestic demand, technology, and overseas expansion, particularly for undervalued stocks [8] Industry Insights - Defensive dividend sectors are recommended for allocation, while a "barbell strategy" remains effective in the current market environment [9] - The banking sector is showing signs of stabilization, with expectations of increased insurance capital inflow supporting dividend sectors [9] - In the offensive sector, technology remains a focus, especially with potential trading opportunities arising from domestic policy stability [9]

Core Viewpoint - The People's Bank of China has maintained the Loan Prime Rate (LPR) for both 1-year and 5-year terms at 3.0% and 3.5% respectively for three consecutive months, indicating a stable monetary policy environment amid economic fluctuations [1] Group 1: Loan Prime Rate (LPR) - The 1-year LPR is set at 3.0% and the 5-year LPR at 3.5%, both remaining unchanged for three months [1] - The stability in LPR suggests a cautious approach by the central bank in response to current economic conditions [1] Group 2: Economic Outlook - According to Wang Qing, Chief Macro Analyst at Dongfang Jincheng, macroeconomic data showed a downward trend in July, with potential external demand slowdown ahead [1] - There is an expectation for future policy measures aimed at boosting domestic demand and stabilizing the real estate market, which may create room for a reduction in policy rates and LPR quotes [1]

Macroeconomic Analysis - Société Générale (法兴银行) summarizes China's economic and financial data performance in July [1] - China's domestic demand remains fragile [1] - Policy support is urgently needed [1]

Group 1: Industrial Production - China's industrial production remains stable, with daily average pig iron output and steel plate production increasing week-on-week[1] - The operating rate of oil asphalt and some chemical products has improved, while cement clinker capacity utilization has slightly adjusted[1] - Polyester weaving and automotive tire production rates have rebounded, indicating a recovery in downstream industries[1] Group 2: Real Estate - New home sales in 30 major cities decreased by 8.9% year-on-year, but the decline rate improved by 6.2 percentage points compared to the previous week[1] - Year-to-date, new home sales have dropped by 14.2%, a 5.0 percentage point improvement from the previous month[1] - The index for second-hand home listing prices fell by 0.42% week-on-week as of August 4[1] Group 3: Domestic Demand - Movie box office revenue averaged 206.74 million yuan per day, showing a year-on-year increase of 46.2%[1] - Domestic flight operations increased by 1.6% year-on-year, with the Baidu migration index rising by 17.7%[1] - Retail sales of major home appliances grew by 10.5% year-on-year as of August 1[1] Group 4: External Demand - Port cargo throughput increased by 6.8% year-on-year, while container throughput rose by 4.1%[1] - South Korea's export value decreased by 4.3% year-on-year, a decline of 10.2 percentage points from July[1] - The Chinese export container freight index fell by 0.6% week-on-week, indicating a downward adjustment in shipping rates[1] Group 5: Price Trends - The South China industrial product index rose by 0.4%, while the black raw material index remained stable[1] - Rebar futures prices dropped by 0.8%, and spot prices fell by 0.3%[1] - Coking coal futures prices increased by 0.2%, but spot prices in Shanxi decreased by 0.6%[1]

Group 1: Economic Performance and External Demand - China's GDP grew by 5.3% year-on-year in the first half of the year, with net exports contributing an increase of 1.0 percentage points to economic growth [1] - In Q2, GDP growth slowed to 5.2%, with external demand and consumption contributions decreasing by 0.9 and 0.1 percentage points respectively, while investment contribution increased by 0.8 percentage points [1] - The negative impact of US tariff policies is expected to intensify in the second half of the year, necessitating the effective release of domestic demand potential to stabilize growth [1] Group 2: Trade Dynamics with the US - In the first half of the year, China's exports to the US fell by 10.7%, while imports decreased by 9.2%, leading to an 11.5% drop in trade surplus [2] - The US saw a 21.2% decline in exports to China and a 15.6% decrease in imports from China, with a 12.5% reduction in trade deficit [2] - Despite a reduction in tariffs announced in mid-May, bilateral trade has not fundamentally improved [2] Group 3: Monthly Trade Trends - In May, China's exports to the US dropped by 34.5%, and imports fell by 18.1%, with a 41.5% decrease in trade surplus [3] - By June, the decline in exports to the US moderated to 16.1%, while imports decreased by 15.5% [3] - The US experienced a 42.1% drop in exports to China in May, with a 41.4% decline in imports, but the decline narrowed in June [3] Group 4: Impact of Tariff Policies - Over half of the Chinese goods exported to the US have been significantly affected by the current tariff situation, with 53.5% of product categories experiencing lower export growth than the average [4] - In Q2, 24.5% of products exported to the US saw declines of over 40%, but this only accounted for 2.4% of total export value [5] Group 5: Future Trade Projections - The WTO predicts a 0.9% increase in global goods trade for the year, but warns that recent tariff changes will negatively impact global trade prospects [7] - The IMF has raised its global economic growth forecast but emphasizes that rising tariffs could weaken economic growth and increase uncertainty [6] Group 6: Domestic Economic Strategies - The Chinese government is focusing on releasing domestic demand potential as a key strategy to counter external disruptions [10] - Recent policies aim to stimulate consumption through financial support for personal loans and service sector businesses, enhancing market vitality [14]

Consumption Data - In July 2025, the total retail sales of consumer goods reached 38,780 billion yuan, with a year-on-year growth of 2.7%, slowing from 3.8% in the previous month[2] - Household deposits grew by 10.27% year-on-year in July, a slowdown of 0.51 percentage points from the previous month; household loans increased by 2.65%, down 0.33 percentage points[2] - The retail sales of petroleum and products showed negative growth, dragging down the overall retail sales growth by 0.44 percentage points[2] Real Estate Market - In July, the sales area of commercial housing was 57.09 million square meters, a year-on-year decline of 8.4%, with the decline expanding by 1.8 percentage points from the previous month[15] - The average price of commercial housing fell by 2.4% year-on-year, indicating a continued downward trend in housing prices[21] - The cumulative year-on-year decline in real estate development funding sources was 7.5%, with domestic loans down by 0.5 percentage points to 0.1%[26] Investment Trends - From January to July, national fixed asset investment totaled 288,229 billion yuan, with a year-on-year growth of 1.6%, slowing by 1.2 percentage points from the previous month[3] - Infrastructure investment (excluding electricity) grew by 3.2%, but the pace has slowed due to reduced government spending and early utilization of government bonds[28] - Manufacturing investment growth was 6.2%, down 1.3 percentage points from the previous period, reflecting a slowdown in investment across various sectors[35]