September 1, 2025 01:46 AM GMT Investor Presentation | Asia Pacific M Foundation China Market Debate: Key Takeaways from Beijing and Shenzhen Related Report: China Market Debate: Key Takeaways from Beijing and Shenzhen (1 September 2025) Morgan Stanley Asia Limited Robin Xing Chief China Economist Robin.Xing@morganstanley.com +852 2848-6511 Zhipeng Cai Economist Zhipeng.Cai@morganstanley.com +852 2239-7820 For important disclosures, refer to the Disclosure Section, located at the end of this report. M Modes ...

Business Sentiment & Expectations - Companies report a flat and weak business situation [1] - Expectations are improving, anticipating increased government spending in the future [2] - Order intake and other indicators are not yet showing improvement [2] - Companies are increasing capacity in anticipation of government spending [4] Economic Challenges - German company insolvencies have reached the highest level since 2005 [3] - The housing and apartment sector remains weak [4] - GDP figures disappointed with a -0.0% [10] Trade Deal Assessment - The current trade deal is considered a humiliation for the EU, reflecting an imbalance of power [5] - The trade deal is worse than previous arrangements, posing a challenge to the German economy, estimated around 15% [6] - Companies do not fully trust the trade deal due to uncertainty and potential changes [7] Fiscal Stimulus & Reforms - A fiscal stimulus package targeting defense and infrastructure has been unveiled [8] - The stimulus is expected to have a positive impact next year [8] - The sustainability of the stimulus depends on complementary structural reforms [9][11] - Without structural reforms, the effects of government spending will be short-term and may lead to price increases [10][11]

Summary of Key Points from the Conference Call Industry Overview - The focus of the conference call is on the **Chinese economy** and its current macroeconomic challenges, particularly regarding **deflation** and the **anti-involution campaign** initiated by the Chinese government [1][2]. Core Insights and Arguments - **Chinese Inflation Trends**: While the US has experienced inflation above target, China has seen inflation below target, with the GDP deflator negative for nine consecutive quarters, indicating a risk of deflation [1]. - **Policy Shift**: The anti-involution campaign represents a significant policy pivot aimed at addressing deflation and overcapacity in the economy, moving away from traditional stimulus measures [1][2]. - **Industrial Landscape Changes**: The current industrial environment is characterized by a dominance of private enterprises in emerging sectors like solar, electric vehicles (EVs), and batteries, contrasting with the state-owned enterprises (SOEs) of the past [2]. - **Need for Market-Oriented Strategies**: The complexity of the current macro environment necessitates a more market-oriented approach to policy, rather than top-down mandates, to effectively consolidate supply in various sectors [2][3]. - **Production Cuts in SOE-Dominated Sectors**: Sectors with high SOE concentration, such as coal, steel, and cement, are already experiencing production cuts, following a historical precedent [3]. - **External Pressures**: Rising US tariffs and geopolitical fragmentation may accelerate the consolidation of domestic industries, pushing China towards higher value-added production [4]. - **Long-Term Reform Outlook**: Structural reforms are essential to address deflation, including recalibrating local incentives, revamping the tax system, and shifting the economic balance towards consumption [8]. Additional Important Content - **Gradual Implementation of Reforms**: The anticipated reforms are expected to be modest and flexible initially, with broader frameworks for the private sector to be established later in the year [3]. - **Consumption Subsidies**: Small steps such as consumption subsidies and targeted welfare support are part of the ongoing discussions to stimulate the economy [5][7]. - **Upcoming Five-Year Plan**: The 15th Five-Year Plan is expected to provide more clarity on reform priorities, balancing industrial policies with the need for structural reforms [8]. This summary encapsulates the critical insights from the conference call regarding the Chinese economy's current state and the implications of the anti-involution campaign, highlighting the need for strategic reforms and market-oriented policies to combat deflation and stimulate growth.

France needs structural reforms, not budget gimmicks, writes @LionelRALaurent (via @opinion) https://t.co/nHVFxWL0VD ...

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