Asia Insights Global Markets Research Economics - Asia ex-Japan China: The great divides, RMB, and the policy dilemma for Beijing Since 2020 the Chinese economy has been characterized by a great divide between rapidly rising exports and a crashing property sector. This divide in turn has helped to lead to China's surging trade surplus above USD1.0trn this year, which is likely to trigger rising trade tensions and is unlikely to be sustained. The real root cause of the staggering trade imbalance is China's d ...

Investment Rating - The report does not provide a specific investment rating for the industry Core Insights - The 15th five-year plan (FYP) is expected to prioritize resilience, security, and inclusivity over specific growth targets, with a potential growth target of around 4.5% for 2026, gradually shifting to around 4% by 2030 [4][60] - The report highlights the significance of the 15th FYP due to China's growing global importance and the challenges arising from the property market collapse since 2021 [3][4] - The anticipated "second China shock" refers to a surge in high-tech and high-value Chinese exports, which may disrupt global industries more severely than the first China shock [9][25] Summary by Sections 1. Overview of the 15th FYP - The 15th FYP will be discussed at the CPC's annual conference in October 2025, with the final draft to be approved in March 2026 [1] - The plan is expected to address the fallout from the property market collapse and focus on inclusive growth to maintain social stability [3][4] 2. Achievements and Setbacks of the 14th FYP - Average real GDP growth during the 14th FYP (2021-25) was around 5.4%, with significant advancements in technology and manufacturing [8][10] - The property market collapse has led to a significant decline in new home sales and has negatively impacted household wealth and fiscal revenues [44][45] 3. Key Themes for the 15th FYP - The report assigns a low likelihood to Beijing setting a specific growth target, instead emphasizing resilience and inclusivity [4][60] - Major themes include advancing tech self-sufficiency, addressing the property market crisis, and reforming the social welfare system to reduce inequality [4][60][69] 4. Geopolitical and Domestic Challenges - Geopolitical tensions are identified as a primary challenge, with the US-China relationship expected to remain tense [32][34] - The domestic property market remains a significant challenge, with ongoing efforts needed to clean up the sector and address the resulting economic impacts [50][51] 5. Demographic and Inequality Issues - China's aging population and rising inequality are highlighted as critical issues that could hinder economic growth [51][55] - The report suggests that reforms to the pension system are essential for promoting inclusive growth and reducing inequality [69][71]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Chinese economy**, particularly the impact of the **anti-involution campaign** on economic recovery and deflation issues stemming from the **property sector collapse** and overcapacity in the **green sector** [1][2][3][4]. Core Insights and Arguments - **Deflation and Economic Recovery**: China's economic recovery post-pandemic has been weak, characterized by deflation, primarily due to the collapse of the property sector, which accounted for **25% of GDP** and **38% of national fiscal revenue** [1][14]. - **Anti-Involution Campaign**: Launched in mid-2024, aimed at curbing aggressive price competition among enterprises. Recent actions include increased enforcement and price coordination meetings, leading to rising commodity prices and stock prices for certain companies [2][7]. - **Concerns Over Overcapacity**: Despite the anti-involution efforts, overcapacity in the green sector remains a significant concern. The campaign may not effectively reflate the economy due to anticipated demand shocks and lack of substantial stimulus programs [3][4][33]. - **Price Trends**: Recent spikes in commodity prices are viewed as speculative and unsustainable. PPI inflation remains negative, with forecasts of **-2.5%** for 2025 and **-0.6%** for 2026 [4][10]. - **Sector-Specific Impacts**: The solar industry has been particularly affected by price competition, with many producers incurring losses. Investment growth in the solar sector contracted by **29.1%** in 2024 [9][29]. Additional Important Insights - **Investment Trends**: Local governments have heavily invested in manufacturing sectors, particularly in EVs, batteries, and solar, leading to excessive capacity and price wars. Investment growth in lithium-ion batteries dropped from **104.6%** in 2021 to **19.1%** in 2023 [29][44]. - **Property Market Decline**: The property market continues to struggle, with contract sales of top developers dropping by **73.1%** in value from H1 2021 to H1 2025. Average home prices have fallen by around **30%** [20][47]. - **Export Challenges**: Despite a temporary rebound in exports, significant headwinds are expected due to US tariffs and a slowdown in demand. Exports to the US fell by **21.6%** y-o-y in July [54][61]. - **Social Security Enforcement**: Stricter enforcement of social security contributions is anticipated to challenge SMEs, particularly in labor-intensive sectors, potentially leading to closures or workforce reductions [55][57]. Conclusion - The anti-involution campaign, while aimed at addressing deflation and overcapacity, faces significant challenges. The lack of robust demand-side stimulus, ongoing property market issues, and potential demand shocks could hinder effective economic recovery in China [3][33][67].