Group 1: Tax Revenue Insights - Personal income tax (PIT) increased by 8% year-on-year in the first half of the year, despite overall tax revenue declining by 1.2%[3] - Value-added tax (VAT) grew by 2.8%, while corporate income tax (CIT) saw a decline of 1.9%[7] - Non-tax revenue turned negative, with a 3.7% year-on-year decrease in June, primarily due to reduced contributions from state-owned assets and improved business environment leading to lower fees and penalties[28] Group 2: Fiscal Expenditure and Investment Trends - General fiscal expenditure rose by 17.6% year-on-year in June, significantly up from 5.3% for infrastructure investment, which fell by 3.9% compared to the previous month[4] - The acceleration in fiscal spending is largely attributed to a one-time injection of special bonds into commercial banks, with actual growth being slower when excluding this factor[34] - Special bonds are increasingly being used for debt repayment, with 46.7% of newly issued bonds in July allocated for this purpose, compared to only 41.7% for project construction[51] Group 3: Future Fiscal Outlook - The fiscal revenue and expenditure are expected to face pressure in the second half, with projected year-on-year growth rates of -4.5% for revenue and 1.5% for expenditure[5] - The anticipated budget gap for the year is estimated at 516.6 billion yuan for revenue and 547.2 billion yuan for expenditure, with limited necessity for additional deficits[5] - The government plans to utilize fiscal reserves, including the budget stabilization fund and profits from central financial enterprises, to cover a projected 120 billion yuan shortfall due to new subsidies[69]

Investment Rating - The industry investment rating is "Positive" and maintained [11] Core Viewpoints - The issuance of special bonds by local governments is progressing faster than in previous years, with debt clearance becoming a new use for these bonds. As of June 21, 2025, 87% of the 2 trillion yuan quota for replacing hidden debts has been implemented [2][35] - The environmental sector, particularly government-related debts, is expected to benefit from the current "debt replacement + debt clearance" initiative, leading to substantial advantages for To G enterprises [2][35] Summary by Sections New Special Bonds - Local governments have issued 1.69 trillion yuan in new special bonds as of June 21, 2025, a year-on-year increase of 26.9%. The issuance pace has accelerated [6][17] - The share of environmental special bonds has decreased to approximately 0.4% due to improved waste treatment rates and the completion of capital expenditures [6][18] - Specific regions like Hunan, Yunnan, and Guangxi have allocated part of the new debt to settle government debts owed to enterprises, with Yunnan specifying 356 billion yuan for this purpose [6][24] Special Refinance Bonds - From January to June 2025, the government issued 1.74 trillion yuan in special refinance bonds, all aimed at replacing hidden debts. The total issuance for 2025 is expected to reach 2 trillion yuan, with 86.8% already completed [7][32] - Regions with significant issuance include Jiangsu (251.1 billion yuan), Shandong (106 billion yuan), and Sichuan (98.4 billion yuan), indicating a proactive approach to resolving hidden debt issues [7][33] Investment Logic - The "debt replacement + debt clearance" strategy is expected to provide substantial benefits to companies with government receivables, aiding in the recovery of credit impairment losses and stimulating new demand [9][34] - Two investment strategies are recommended: 1. Value side: Focus on sectors with large receivables and low risk, such as waste incineration and water operations [9][38] 2. Elasticity side: Target leading companies in water, waste incineration, and environmental services with low price-to-book ratios and high government receivables [9][38]