Report Overview - The report is a commentary on the financial data for October 2025, focusing on the bond market's expectations of the decline in financial data and the internal structural highlights of the data [1][4]. Report's Core View - The bond market may have anticipated the decline in October's financial data. The economic growth rate is not expected to decline significantly in the second half of 2025, and structural issues such as prices are expected to improve. There will be a continued shift in the stock - bond allocation, with bond yields and the stock market expected to rise [4][7]. Summary by Related Catalog Reasons for the Expected Decline in Financial Data - Local government debt resolution will temporarily reduce loan growth. Since 2024, local governments have issued 4 trillion yuan in special refinancing bonds, with about 60 - 70% used to repay bank loans [4]. - The government sector is increasing leverage to offset the de - leveraging of the household sector. As of the end of the third quarter of 2025, the government sector's leverage ratio was 67.5%, up 8.8 pct from the same period in 2024, while the household sector's leverage ratio was 60.4%, down 1.2 pct [4]. - Due to weak demand, household loans declined in October. Household loans decreased by 360.4 billion yuan, with short - term loans down 286.6 billion yuan and long - term loans down 70 billion yuan [4]. - The government bond issuance rhythm in 2025 was advanced compared to 2024, causing a 53.4% year - on - year decline in net government bond financing in October [5]. - The bond market may have anticipated the decline in financial data, as indicated by the significant bill impulse at the end of October and the explanations in the third - quarter monetary policy report [5]. Structural Highlights in the Data - Non - bank institutions' new deposits increased significantly in October, with an 185 billion yuan increase and a 71.3% year - on - year growth, possibly related to the strengthening of the equity market and the increase in residents' willingness to invest in wealth management products [6]. - The credit structure continued to optimize. The balance of inclusive small and micro loans was 35.77 trillion yuan, with an 11.6% year - on - year growth, and the balance of medium - and long - term loans in the manufacturing industry was 14.97 trillion yuan, with a 7.9% year - on - year growth [6]. - 500 billion yuan of new policy - based financial instruments have been fully disbursed, with a total project investment of about 7 trillion yuan, which may support subsequent loans [6]. Bond Market Outlook - Against the backdrop of revised economic expectations, bond yields are expected to rise trend - wise. The report maintains the view that in the second half of 2025, the economic growth rate will not decline significantly, structural issues will improve, and there will be a continued shift in the stock - bond allocation [7].

Economic Outlook - The biggest uncertainty facing China's economy this year is the extreme pressure from external tariffs, but the first half of the year showed three positive aspects: actual GDP growth of 5.3%, new achievements in technology and consumption, and proactive government measures to mitigate potential shocks [2] - The growth in the first half was primarily driven by resilient external demand, contributing an additional 1 percentage point to GDP growth, while consumption and investment saw declines of 0.3 and 0.4 percentage points respectively [3] - The second half of the year will depend on whether domestic demand can effectively take over, as investment, consumption, and external demand all showed signs of slowing down in August [4] Consumer Behavior and Debt Levels - The decline in household leverage is attributed to multiple factors, including structural changes in consumption behavior due to the pandemic, uncertainties in Sino-US trade relations, and fluctuations in asset prices affecting borrowing demand [5] - The ongoing deleveraging process among households poses challenges for traditional methods of stimulating consumption through increased leverage [5] Policy Recommendations - There is a need for stronger coordination between fiscal and monetary policies, focusing on enhancing the effectiveness of policies aimed at boosting consumption and investment [7] - Continuous monitoring of domestic and international economic conditions is essential to ensure timely policy responses, avoiding delays that could exacerbate economic downturns [7] - Policies should be carefully evaluated for consistency, especially those that may restrict consumption, to avoid counterproductive effects on economic stimulus [8] Currency Exchange Rate Dynamics - The RMB has shown resilience against the USD despite external pressures, with a cumulative appreciation of about 1% as of September 19, 2025, attributed to a combination of internal and external factors [10] - The RMB's exchange rate is influenced by various factors, including the depreciation of the USD and improvements in China's economic fundamentals, suggesting that the RMB is not significantly overvalued [11][12] - The ongoing trade surplus indicates upward pressure on the RMB, while domestic economic conditions suggest that it may be slightly overvalued relative to internal equilibrium levels [12] Market Sentiment and Future Outlook - Despite a net outflow of RMB in cross-border transactions, the overall market does not indicate significant concerns regarding the RMB's valuation [13] - Factors that could positively influence the RMB include potential interest rate cuts by the Federal Reserve and progress in Sino-US trade negotiations [14] - However, uncertainties remain regarding the pace of Fed rate cuts, future trade negotiations, and the impact of domestic economic conditions on consumer demand [14][16]