Core Viewpoint - The Chinese economy is projected to face increasing pressure on demand due to tariffs, real estate challenges, and limited fiscal capacity, necessitating stronger counter-cyclical policies in the second half of 2025 [1][3]. Economic Growth Contributions - In the first half of the year, final consumption expenditure contributed 52% to GDP growth, capital formation contributed 16.8%, and net exports contributed 31.2% [2]. - The contribution of final consumption expenditure slightly increased to 52.3% in the second quarter, indicating that domestic demand, particularly consumption, is the main driver of GDP growth [2]. Fiscal and Monetary Policy - The focus for the second half of the year will be on reducing reserve requirements and interest rates, expanding domestic demand, and supporting a recovery in the real estate market [3][4]. - The report suggests utilizing public budget funds and considering the issuance of an additional 2.3 trillion yuan in government bonds to meet fiscal spending targets [3]. Consumer Promotion Strategies - There is an urgent need to promote consumption as the U.S. global tariffs may negatively impact Chinese exports, potentially leading to a shift from positive to negative net export contributions [5]. - Proposed measures to boost consumption include issuing long-term special bonds and increasing support for trade-in programs, with a broader scope to include general consumer goods and services [5]. Real Estate Market Recovery - To facilitate a quicker recovery in the real estate market, both demand and supply sides need to be addressed, including potential measures such as relaxing purchase restrictions and providing subsidies for low-income homebuyers [5].

Core Viewpoint - The Chinese foreign exchange market has shown resilience and stability in the first half of 2025, with the RMB appreciating against the USD by 1.9% and maintaining a stable range between 7.15 and 7.35, despite a complex external environment [2][3]. Economic Performance - China's GDP grew by 5.3% year-on-year in the first half of 2025, with domestic demand contributing 77% to economic growth, reflecting an increase of 17 percentage points [4]. - The foreign exchange market's stability is supported by a robust economic foundation and ongoing efforts to expand domestic demand [4]. Foreign Exchange Market Dynamics - In the first half of 2025, there was a bank settlement and sale of foreign exchange deficit of 25.3 billion USD, with a notable shift from deficit to surplus in May and June [2]. - The foreign exchange settlement rate was stable at 60%, while the foreign exchange purchase rate decreased by 3 percentage points to 65% [2]. Market Expectations - The foreign exchange market expectations remain stable, with no significant unilateral appreciation or depreciation of the RMB anticipated [3]. - The RMB exchange rate against the USD was 7.16 at the end of Q2, appreciating slightly from 7.18 at the end of Q1 [3]. Policy and Regulation - The Chinese government is committed to maintaining a balanced international payment structure and promoting high-level opening-up, which is expected to support the stability of the foreign exchange market [4]. - The market has accumulated experience in counter-cyclical regulation, enhancing its ability to respond to external shocks [5]. Risk Management - The awareness of exchange rate risk among enterprises has improved, with the foreign exchange hedging ratio and the proportion of RMB cross-border transactions reaching historical highs of around 30% [5]. - The foreign exchange market has a rich reserve of policy tools and regulatory effectiveness, which enhances its capacity to mitigate external risks [5].

二是以城市更新改造为突破口，扩大政府主导的公共投资。以旧换新政策会随着时间拉长而政策效力递减。在当前制造业产能充裕、产能利用 率不高的环境下，企业设备更新改造的需求不强，进入二季度以后制造业投资增速已经出现了显著下降。比较而言，城市更新改造是为数不多 的现实迫切需要且能够从总体规模上改变宏观局面的发力点。 从结构来看，工业生产保持旺盛，工业增加值增速持续高于GDP增速。出口仍保持韧性，对美国出口虽然明显下降，但是对其他区域仍保持了 较高出口增速。在以旧换新政策支持下，社会零售总额的累计增速较一季度进一步提高，相比之下，固定资产投资较一季度有所走弱。同时， 一季度房地产市场呈现出的企稳迹象再度转为收缩压力，新建住宅销售面积和二手房价格等指标再度走弱。 报告提及，在关税对出口负面影响进一步显现、政府发债和支出力度不及上半年、房地产下跌三重压力下，我国经济下半年仍面临较大需求压 力。而扩大内需仍然是下半年宏观经济政策核心的着力点。 在谈及如何扩大内需时，CF40资深研究员、中国社科院世界经济与政治研究所副所长张斌指出，财政支出是关键，一是要充分运用公共预算 的调入资金及使用结转结余，考虑额外发行2.3万亿政府债券， ...

Economic Performance - China's GDP grew by 5.3% year-on-year in the first half of the year, surpassing the annual target of 5% [1] - The contribution of consumption to economic growth reached 52% in the first half of the year, with total retail sales of consumer goods amounting to 24.55 trillion yuan, a 5% increase year-on-year [4] Consumption Trends - The retail sales growth rate for the catering industry significantly declined from 5.2% in April and 5.9% in May to just 0.9% in June, with the average growth rate for the second quarter at 4.0%, down from 5% in the first quarter [4] - The "old-for-new" policy has positively impacted retail sales, but its effectiveness is expected to diminish over time, necessitating new strategies to boost domestic demand [4][9] Real Estate Market - The real estate market showed signs of weakness in the second quarter, with fixed asset investment growth slowing down and real estate investment declining further, with a year-on-year drop of 11.2% by June [5] - New residential sales area decreased by 3.7% year-on-year in June, indicating a continued downturn in the real estate sector [5] External Economic Factors - Exports to the U.S. fell by 24% in the second quarter, while exports to other regions, such as ASEAN and India, increased by 17.5% and 14.3% respectively [7] - The expiration of the 90-day tariff suspension on August 1 poses additional risks to the economic outlook, with potential new tariffs being implemented by the U.S. [7][8] Future Economic Outlook - Experts suggest that the focus for the second half of the year should be on expanding domestic demand, with fiscal spending being a key driver [9][10] - Recommendations include utilizing public budget funds and considering the issuance of an additional 2.3 trillion yuan in government bonds to support fiscal expenditure growth [9]

Core Viewpoint - The industry is expected to see continuous improvement in its prosperity due to the gradual implementation of counter-cyclical fiscal policies and a cyclical upswing in the industry, with excavator domestic sales growth likely to continue rising. Although exports face certain trade friction risks, most major engineering machinery manufacturers have limited exposure to the U.S. market, making the risks manageable. Overall, opportunities outweigh risks in 2025 [1]. Group 1: Industry Performance - In June 2025, domestic excavator sales reached 8,136 units, a year-on-year increase of 6.20%, while total excavator sales were 18,804 units, up 13.3% year-on-year. Exports accounted for 10,668 units, reflecting a 19.3% increase [2]. - For the first half of 2025, total excavator sales were 120,520 units, a 16.8% year-on-year increase, with domestic sales at 65,637 units, up 22.9%, and exports at 54,883 units, up 10.2% [2]. - The average monthly working hours for major engineering machinery in June 2025 were 77.2 hours, down 9.11% year-on-year, with excavators averaging 64.2 hours [2]. - The monthly operating rate for major engineering machinery in June 2025 was 56.9%, a decrease of 7.55 percentage points year-on-year, with excavators at 58.2% [2]. Group 2: Trade Risks - Most Chinese engineering machinery manufacturers have limited exposure to the U.S. market, with XCMG's U.S. market revenue accounting for less than 1% of total revenue, and Zoomlion's around 1%. Hengli Hydraulic's export revenue to the U.S. is approximately 5% of total revenue, indicating that overall risks are manageable [3].

Market Overview - On July 16, the Shanghai Composite Index decreased by 0.03%, the CSI 300 fell by 0.3%, the STAR 50 rose by 0.14%, the CSI 1000 increased by 0.3%, the ChiNext Index dropped by 0.22%, and the Hang Seng Index declined by 0.29% [4] - The best-performing industries on July 16 were social services (+1.13%), automotive (+1.07%), pharmaceutical and biotechnology (+0.95%), light industry manufacturing (+0.94%), and agriculture, forestry, animal husbandry, and fishery (+0.85%). The worst-performing industries were steel (-1.28%), banking (-0.74%), non-ferrous metals (-0.45%), non-bank financials (-0.43%), and construction decoration (-0.42%) [4] - The total trading volume of the A-share market on July 16 was 14,617.34 billion yuan, with a net inflow of 1.603 billion Hong Kong dollars from southbound funds [4] Key Insights - The macroeconomic research indicates that with the gradual implementation of tariffs, external demand is expected to weaken, signaling an approaching downturn in exports. Attention is drawn to the impact of tariff conflicts on companies establishing overseas warehouses for cross-border stockpiling, which may disrupt export rhythms [5] - The macroeconomic deep report highlights that the economic recovery in June shows a good momentum, with the actual GDP growth in the second quarter at 5.2%. The growth rate of industrial added value above designated size in June increased by 6.8% year-on-year, indicating a significant divergence between supply and demand [6]

Economic Stimulus Recommendations - Experts suggest the government should implement additional economic stimulus measures of 1 to 15 trillion RMB (approximately $137 billion to $206 billion USD based on current exchange rates) within 12 months [1] - The stimulus aims to boost resident consumption and mitigate the economic damage caused by US tariffs [1] - The report emphasizes the need for stronger counter-cyclical policies to maintain stable growth [1] Structural Reform Proposals - The report suggests expanding the individual income tax base and simplifying the value-added tax (VAT) structure in the long term [1] - The report highlights the importance of managing risks associated with SME lending to enable banks to lend to more productive sectors [1]

Group 1 - The report highlights a significant rebound in A-shares, with the CSI 500 and Shenzhen Composite Index rising by 4.3% and 5.22% respectively in June, driven by the second round of US-China negotiations and financial stability measures implemented on May 7 [3] - The report indicates that the central bank is expected to increase monetary easing, with a net withdrawal of 553.9 billion yuan in June, reflecting cross-quarter funding pressures [3] - In the commodities market, non-ferrous metals showed an overall upward trend, while crude oil rebounded significantly, and pork prices remained close to warning levels [3] Group 2 - The report tracks industry profitability, noting that the ROETTM for consumer electronics, white goods, and industrial metals is at a one-year high, while software, banking, and media sectors are at a low [5] - The report assesses industry sentiment, indicating high expectations for ROE growth in biopharmaceuticals, communication equipment, and power equipment, while coal mining and banking sectors show lower sentiment [5][31] - The report predicts a 6.0% year-on-year increase in industrial added value for June, with a PMI reading of 51.0 indicating expansion in manufacturing [6][33] Group 3 - The report discusses the strategic acquisition of Jiangsu Hengyi by Huada Technology, which is expected to enhance the company's performance and optimize its asset structure [14][36] - The company has secured numerous project designations from major automotive manufacturers, with expected total sales of 32 billion yuan from body parts and 31.5 billion yuan from battery box projects [14][37] - The report revises the revenue forecasts for Huada Technology for 2025-2027, estimating revenues of 63.57 billion, 74.82 billion, and 88.29 billion yuan respectively, with a maintained "buy" rating [14][37] Group 4 - The report outlines the implications of including government bonds in the reserve requirement framework, suggesting that this could enhance liquidity but may not directly translate to increased credit supply [38][39] - It emphasizes the need for a significant reduction in the reserve requirement rate before implementing government bond inclusion to stimulate bank asset replacement [39][40] - The report indicates that the current banking environment is characterized by weak credit demand and a tendency towards "fiscalization" in asset allocation [39]

Manufacturing Sector - The manufacturing PMI for June 2025 is 49.7%, up from 49.5% in May, aligning with market expectations[2] - The production index increased by 0.3 percentage points to 51.0%, while the new orders index rose by 0.4 percentage points to 50.2%[5] - Large and medium enterprises showed improved sentiment, with large enterprises' PMI rising to 51.2% and medium enterprises' PMI to 48.6%, while small enterprises' PMI fell to 47.3%[5] Economic Recovery Indicators - External disturbances have weakened, leading to a recovery in new export orders, which continue to rise[3] - High-energy-consuming industries are stabilizing, with their PMI increasing by 0.8 percentage points to 47.8%[15] - The service sector's business activity index slightly decreased to 50.1%, primarily due to the end of holiday effects, but remains in the expansion zone[27] Price and Inventory Trends - The raw material purchase price index rose to 48.4%, and the factory price index increased to 46.2%, both recovering from previous declines[23] - The raw material inventory index increased by 0.6 percentage points to 48.0%, indicating improved production activity[23] Construction Sector - The construction sector's business activity index rose significantly to 52.8%, reflecting a positive trend in housing construction activities[32] - The government is implementing policies to stabilize the real estate market, which is expected to further improve supply-demand dynamics[33]

Core Viewpoint - The second half of the year is expected to see a phase synchronization of domestic and foreign policy rhythms, with a focus on structural opportunities in domestic assets [1] Group 1: Economic Outlook - Despite differing economic cycles between China and the U.S., uncertainties from tariff impacts are leading to synchronized policy rhythms in the second half of the year [1] - In the first half of Q3, both domestic and foreign economies are expected to show resilience, with policies focusing on cautious management of expectations [1] - By the latter part of Q3, export pressures in China and increasing pressures in the U.S. are anticipated, with more incremental policies likely to be introduced in Q4 [1] Group 2: Market Dynamics - The U.S. is expected to maintain some resilience in Q3, supporting risk appetite, but uncertainties from tariffs and debt risks may increase market volatility [1] - In Q4, as pressures in the U.S. mount, the likelihood of Fed rate cuts may support risk asset valuations through liquidity [1] - The U.S. fiscal year budget deadline and the expiration of "reciprocal tariffs" in September may lead to significant market fluctuations [1] Group 3: Domestic Economic Conditions - Domestic conditions are expected to remain weak but stable, with infrastructure spending providing upward support in the second half of the year [1] - Export growth is projected to slow down in August, with a neutral year-on-year growth expectation of around 1.5% [1] - Infrastructure funding is expected to increase in the latter half of the year, while real estate policies continue to strengthen [1] Group 4: Asset Allocation - Domestic assets are expected to focus on structural opportunities, with a policy-driven logic becoming more pronounced [1] - Equity markets are anticipated to continue with dividend and growth styles, focusing on undervalued sectors, while commodities will focus on black building materials and agricultural products [1] - Bonds are recommended for low-cost allocation, benefiting from expectations of loose monetary policy in Q4 [1] Group 5: International Market Considerations - International assets should be aligned with the weak dollar theme, while being cautious of volatility spikes [1] - U.S. stocks are expected to experience fluctuations in the first half of Q3, with potential relief from valuation pressures in Q4 due to rate cuts [1] - Non-dollar assets are likely to benefit in a weak dollar environment, while gold and other resource commodities are recommended for long-term strategic allocation [1]