Report Industry Investment Rating Not provided in the content Core Viewpoints - The market performance from July 5 to August 3 exceeded expectations, with abnormal financial sector liquidity in June and greater - than - expected fiscal front - loading. The financial sector liquidity peaked around the first week of July and then converged marginally. The government and entity sector debt growth rate reached their highs in July, and the entity sector debt growth rate is likely to decline unilaterally until the end of the year, with a slight expansion in late September or early October [1][39]. - Looking ahead to August, the two major factors affecting asset prices are stable earnings and marginally converging liquidity. As risk preference is an endogenous variable of earnings and valuation, it will decline over time. When risk preference drops, the stock - bond ratio will shift back to bonds, and the equity style will return to value - dominance. It is advisable to focus on bonds and wait for value - type equity assets to show an intervention window [1][12][39]. Summary by Directory 1.全社会债务情况 - As of the end of June, China's total social debt balance was 491.5 trillion yuan, a year - on - year increase of 8.6%. The financial institution (inter - bank) debt balance was 90.0 trillion yuan, a year - on - year increase of 7.6%. The entity sector debt balance was 401.5 trillion yuan, a year - on - year increase of 8.8%. Among them, household debt grew at 2.9%, government debt at 15.3%, and non - financial enterprise debt at 7.9% [14][16][19]. - In June, industrial enterprise profits decreased by 4.3% year - on - year, and the debt balance increased by 5.4% year - on - year. State - owned enterprise profits decreased by 4.0% year - on - year [24]. 2.金融机构资产负债详解 - As of the end of June, the debt balance of broad financial institutions was 165.2 trillion yuan, a year - on - year increase of 7.6%. Bank debt was 134.0 trillion yuan, a year - on - year increase of 6.9%, and non - bank financial institution debt was 31.1 trillion yuan, a year - on - year increase of 10.7% [27]. - In June, the bank's excess reserve ratio was 1.7%, and the money multiplier was 8.62. The year - on - year growth rate of base money supply decreased from 2.8% to 2.0%. The new broad - money supply indicator NM2 showed a similar trend to M2, but with a lower absolute level since 2017 [29][35][36]. 3.资产配置 - From July 5 to August 3, the domestic stock market was bullish and the bond market was bearish, with growth stocks outperforming. The core logic driving the market shifted from liquidity improvement to rising risk preference. The stock market was positively correlated with the Nanhua Composite Index [1][39]. - In June, the year - on - year growth rate of bank bond investment balance was 18.7%, and the growth rate of the central bank and bank's total foreign asset balance was 3.5%. The year - on - year growth rate of the US Treasury balance was 4.0%, and fiscal deposits decreased by $102 billion to $334.6 billion [40][43].

Core Viewpoint - The Chinese financial industry is undergoing a profound transformation driven by new regulatory measures aimed at tightening monetary policy and mitigating systemic financial risks, particularly in the areas of internet lending and shadow banking [1][4]. Group 1: Regulatory Changes - The People's Bank of China (PBOC) issued guidelines on July 15 to strengthen financial risk prevention, marking a new phase of tightened monetary policy [1]. - New regulations significantly increase the required contribution of banks in joint lending from 30% to 70%, effectively reducing the leverage of internet platforms [2]. - The regulations also target shadow banking, which had a scale of approximately 25.3 trillion yuan at the end of 2024, accounting for 19.7% of GDP [4]. Group 2: Impact on Financial Institutions - Major banks like Industrial and Commercial Bank of China (ICBC) and China Construction Bank are adjusting their strategies, with ICBC halting joint lending with 10 internet platforms [2]. - Smaller banks are particularly affected, with internet loan income constituting an average of 17.3% of their operating revenue, and some exceeding 30% [5]. - Banks are responding by tightening their investment in non-standard assets and focusing on compliance and risk management [4][5]. Group 3: Long-term Outlook - The adjustments are expected to lead to a healthier and more sustainable financial ecosystem, with improved transparency in fund flows and more reasonable risk pricing [5]. - Analysts predict that the overall non-performing loan ratio in the banking sector will decrease to around 1.2% by 2026 following the adjustment period [5]. - The regulatory changes are part of a broader systemic effort to reduce financial leverage and prevent risks, with 23 significant policy documents issued since 2021 [4][5]. Group 4: Balancing Act - The new regulations reflect the regulatory authorities' commitment to balancing financial openness with risk prevention amid increasing global economic uncertainties [7]. - The adjustment process is expected to be ongoing, requiring adaptation from all market participants [7].