Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy**, particularly its inflation dynamics and the impact of anti-involution measures on economic conditions [1][4][5]. Core Insights and Arguments - **CPI and PPI Trends**: - July's **CPI** showed flat growth at **0%** year-on-year (YoY), down from **0.1%** in June, with food prices dropping **1.6%** YoY [1][4]. - **PPI** experienced a decline of **0.2%** month-on-month (MoM), maintaining an elevated YoY rate of **3.6%** [2][4]. - Consumer goods PPI fell **1.6%** YoY, while producer goods PPI dropped **4.3%** [2]. - **Contributing Factors**: - The decline in CPI was offset by increases in household facilities/services (+0.4% MoM), transportation and communication (+0.2%), and education and entertainment (+0.1%) [1][4]. - Seasonal factors, such as summer tourism and trade-in policy support, contributed to these increases [1][4]. - **Inflation Expectations**: - CPI inflation is expected to hover around **0%** in the coming months, with gradual narrowing of PPI deflation anticipated [4][6]. - **Anti-involution Measures**: - The government's anti-involution measures have led to a marginal narrowing in PPI deflation in affected sectors like coal and steel, but overall impact remains modest [5][6]. - The imbalance between domestic supply and demand persists, limiting significant inflationary pressure [6]. Additional Important Insights - **Sector-Specific Impacts**: - The report highlights that while trade-in subsidies have provided some support, they are insufficient to significantly alter the inflation landscape [6]. - Household appliance CPI inflation turned positive in June, reaching **2.8%** YoY in July, but PPI for these goods remained in deflation [6]. - **Market Sentiment**: - There is a cautious optimism regarding the government's ability to manage excess capacity and unemployment while implementing reforms [5][6]. - **Future Projections**: - The report anticipates only modest progress in reducing excess capacity and a gradual improvement in domestic inflation conditions [6]. This summary encapsulates the key points discussed in the conference call regarding the current state of the Chinese economy, inflation trends, and the implications of government policies.

Investment Rating - The report revises down the full-year 2025/26 forecast of headline PPI inflation to -2.4%/-0.7% yoy from -2.1%/-0.6% yoy previously, indicating a bearish outlook on the industry [10]. Core Insights - China's headline CPI inflation remained unchanged at -0.1% yoy in May, with a decline in goods prices offset by higher services prices [1][3]. - Headline PPI inflation fell to -3.3% yoy in May, down from -2.7% yoy in April, primarily due to falling commodity prices [1][9]. - The report indicates that the weak PPI data suggests more deflationary pressures on China's PPI inflation for 2025 and 2026 than previously anticipated [10]. Summary by Sections CPI Analysis - In May, the CPI was -0.1% yoy, with a month-on-month increase of +0.5% (annualized, seasonally adjusted) [2][3]. - Food inflation decreased to -0.4% yoy in May, primarily due to lower prices of fresh vegetables, while pork prices rose by 3.1% yoy [4]. - Non-food CPI inflation was flat at 0% yoy, with fuel costs falling by 12.9% yoy [5][7]. PPI Analysis - Year-over-year PPI inflation fell to -3.3% yoy in May, with deeper deflation mainly from price declines in upstream sectors like energy and metals [9]. - Month-over-month PPI inflation declined to -5.1% (annualized, seasonally adjusted) in May [9]. - PPI inflation in producer goods fell to -4.0% yoy in May, while consumer goods edged up to -1.4% yoy [9]. Forecast Revisions - The report incorporates weak PPI data, leading to a downward revision of the full-year 2025/26 forecast of headline PPI inflation to -2.4%/-0.7% yoy [10].