Investment Rating - The report indicates a mixed investment outlook for the industry, with industrial production rated at 0, fixed asset investment at -1, and retail sales at +2 [2]. Core Insights - The report highlights that China's industrial production and fixed asset investment missed market expectations, while retail sales showed significant growth, indicating a divergence in economic performance across sectors [1][17]. - The report emphasizes the importance of government policy in stimulating domestic demand, particularly through consumer goods trade-in programs, amidst ongoing deflationary pressures and a prolonged downturn in the property market [1][17]. Summary by Sections Industrial Production - Industrial production (IP) growth moderated to 5.8% year-on-year in May from 6.1% in April, primarily due to slowing export growth linked to increased US tariffs [8][11]. - Sequentially, IP is estimated to have contracted by 0.1% month-on-month non-annualized in May [8]. - Key sectors such as electrical machinery and chemical manufacturing experienced slower output growth, overshadowing gains in automobile production [8][11]. Fixed Asset Investment - Fixed asset investment (FAI) growth slowed to 2.9% year-on-year in May from 3.6% in April, driven mainly by declines in infrastructure and property investments [10][11]. - Manufacturing investment growth remained robust at 7.8% year-on-year in May, contrasting with the overall slowdown in FAI [10]. Retail Sales - Retail sales growth surged to 6.4% year-on-year in May, significantly above market consensus, driven by strong sales in home appliances and communication equipment [11][12]. - The growth in online and offline goods sales improved, with notable increases in restaurant sales revenue as well [11]. - The report cautions that the recent retail sales improvement may not be sustainable due to potential payback effects and funding shortages in consumer goods trade-in programs [1][11]. Property Market - Property-related activity remained weak, with property sales declining by 3.3% year-on-year in volume and 5.9% in value terms in May [13]. - New home starts and completions also showed significant year-on-year declines, indicating ongoing challenges in the real estate sector [13]. Labor Market - The nationwide unemployment rate edged down to 5.0% in May from 5.1% in April, reflecting seasonal patterns, while the unemployment rate for migrant workers increased slightly [14][17]. - Youth unemployment rates showed some moderation but are expected to rise amid the upcoming college graduation season [14][17].

Investment Rating - The report maintains a cautious outlook on the fiscal situation in China, expecting further fiscal easing ahead due to ongoing economic challenges [1][9]. Core Insights - Fiscal revenue growth improved to +0.3% year-on-year in March from -1.6% in January-February, driven by stronger-than-expected activity data [2][5]. - Fiscal expenditure growth rose to +5.7% year-on-year in March from +3.4% in January-February, primarily due to increased spending in energy saving, environmental protection, and agriculture [6]. - The ongoing property downturn continues to negatively impact local government funding, with land sales revenue declining by -16.3% year-on-year in March [7][8]. Summary by Sections Fiscal Revenue and Expenditure - On-budget fiscal revenue growth was +0.3% year-on-year in March, a recovery from -1.6% in January-February, with tax revenue contraction narrowing to -2.2% [2][5]. - Fiscal expenditure growth increased to +5.7% year-on-year in March, up from +3.4% in January-February, driven by specific sectors [6]. Property Sector Impact - Property-related government revenue remained weak, with land sales revenue down -16.3% year-on-year in March, indicating continued pressure from the property market [7][8]. - The contraction in property-related tax revenue narrowed to -0.1% in March from -11.4% in January-February, suggesting some stabilization [7]. Augmented Fiscal Deficit (AFD) - The AFD metric narrowed to -10.9% of GDP in March from -11.6% in February on a 3-month moving average basis, while it widened slightly on a 12-month moving average basis [3][8]. - The forecast for the AFD metric is expected to widen by 4.1 percentage points of GDP to 14.5% in 2025, indicating a shift in fiscal policy from a growth drag to a potential driver [9].