20 August 2025 Relatedly, on 15 August, the Qiushi Journal, a flagship magazine of the Communist Party of China (CCP) Central Committee, published an article by President Xi, emphasising key measures needed to promote development of the private economy. The article was based on President Xi's speech delivered in the symposium with the private sector in February (see China macro tracker, 19 Feb), which reiterated the importance of fair competition, settling local government arrears as well as protecting POE' ...

20 August 2025 Economist, China The Hongkong and Shanghai Banking Corporation Limited taylor.t.l.wang@hsbc.com.hk +852 2288 8650 China Macro Tracker Economics More measures to support growth Growth: Slower growth may prompt faster rollout of demand-side measures Despite steady growth in H1, the July economic data showed softer growth momentum across sectors: a rare month on month contraction in new bank lending with broad- based weakness seen in both household and corporate lending (see China money supply, ...

Summary of Key Points from the Conference Call Industry Overview - The macroeconomic indicators in July were disappointing, with most showing weakness except for trade data, influenced by adverse weather conditions [2][4] - The Chinese economy is experiencing a bifurcation, characterized by strong exports and high-tech developments alongside a weak property market and private demand [2][6] Core Insights - **GDP Growth**: Despite softening data, July GDP tracking remains close to 5% year-over-year [2] - **Anti-involution Efforts**: The government's "anti-involution" initiatives aim to reduce competition and price-cutting but are unlikely to lead to significant production cuts due to a weak labor market and banking sector challenges [2][11] - **Interest Subsidies**: Recent temporary interest subsidies for consumer loans have marginally improved market sentiment, but historical trends suggest limited impact on household credit growth during housing downturns [2][20] - **Current Account Surplus**: Forecasts indicate that China's current account surplus will average around 3.5% of GDP for 2025 and 2026, nearly double consensus expectations, driven by continued emphasis on technological advancement and manufacturing competitiveness [2][43] Economic Indicators - **July Activity Data**: Major indicators showed declines: industrial production fell 0.3%, retail sales decreased 0.9%, and fixed asset investment dropped 6.6% month-over-month [4] - **High-tech Sector Performance**: High-tech industrial production increased by 9.3% year-over-year, with significant growth in sectors like semiconductors and smart transportation equipment [5] - **Property Market Weakness**: The property market remains weak, with new starts, completions, and fixed asset investment in property falling by over 15% year-over-year [6] Additional Insights - **Consumer Behavior**: Auto sales volume increased by 6.9% year-over-year, but the value declined by 1.5%, indicating price deflation in the auto industry [10] - **Employment Sentiment**: Employment sentiment among urban households has fallen to levels seen during the Global Financial Crisis, impacting consumer borrowing [25][32] - **Fiscal Challenges**: The Chinese government faces rising fiscal burdens due to demographic changes, with a significant increase in retirees compared to new job entrants projected for 2045 [36] Conclusion - The Chinese economy is navigating a complex landscape with structural challenges in the property market and labor sector, while high-tech industries show resilience. Policymakers are likely to maintain a cautious approach to stimulus, focusing on targeted measures rather than broad fiscal interventions [3][34][36]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Chinese market**, particularly the **new energy vehicles (NEV)**, **solar**, **coal**, and **cement** sectors, in the context of the **anti-involution initiative** aimed at reducing unhealthy competition and improving corporate profitability [2][3][7]. Core Insights and Arguments 1. **Anti-Involution Initiative**: - The initiative is gaining momentum, with calls for industries to self-regulate to avoid damaging competition. This is expected to improve supply-demand dynamics, drive price recovery, and enhance corporate profitability [2][3]. - China's Producer Price Index (PPI) fell by **2.8% YoY** in the first half of 2025, marking the **33rd consecutive month** of declines, alongside a **9.1% YoY drop** in industrial profit in May [2][12][14]. 2. **Market Reactions**: - Historical parallels are drawn to the **2015-16 supply-side reform**, which led to price increases in materials and a re-rating of relevant sectors. Sectors addressing unhealthy competition, such as solar and power batteries, have recently rebounded [3][4][21]. - Stock prices initially reacted positively to new policies during the supply-side reform, providing excess returns relative to the broader market for **1-2 months** [4]. 3. **Commodity Price Correlation**: - Stock prices initially moved in tandem with commodity prices and production changes, but later decoupled. Significant price increases for relevant commodities occurred during two periods in 2015-16 [5][26]. 4. **Corporate Profitability**: - The coal sector's profitability improved significantly in the second half of 2016, with nearly **90% of capacity** turning profitable by the end of Q3 2016, compared to **8%** in November 2015 [6][31]. 5. **Differences from Previous Reforms**: - The anti-involution push is expected to have a smoother and longer-lasting impact on stock prices compared to the supply-side reform, focusing more on downstream industries where non-state-owned enterprises (non-SOEs) are prevalent [7][9]. Indicators for Investors - Investors should monitor: - Specific capacity controls and recovery in product prices (e.g., polysilicon prices) - Capacity utilization rates in relevant businesses - Rebound in PPI - Indicators such as industrial profit growth and the proportion of profitable businesses, which may lag behind stock price movements [10][36]. Additional Important Insights - The report emphasizes the need for clearer guidelines and stronger support for domestic demand as the anti-involution initiative progresses [10]. - The potential risks facing China's equities include a hard landing in the property market and slow structural reform progress, which could shock the market if not adequately addressed [38]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the relevant industries in China.

Investment Rating - The report does not explicitly state an investment rating for the battery materials industry, but it indicates a positive sentiment towards the sector based on production increases and market conditions. Core Insights - The battery production pipeline is estimated to increase by 1% month-over-month (MoM) and 39% year-over-year (YoY) in July 2025, with electric vehicle (EV) battery production remaining flat MoM, while energy storage system (ESS) battery demand is expected to grow by 4% MoM [1] - Lithium carbonate is projected to rise by 4% MoM, contrasting with the largely flat trends observed in other battery materials [1] - Market sentiment has been buoyed by positive discussions regarding potential supply-side reforms in China, despite ongoing increases in production output [1] Summary by Sections Battery Production Trends - Battery production is estimated to be up by 1% MoM [3] - Cathode production is expected to remain flattish MoM [5] - Anode production is projected to increase by 1% MoM [7] - Separator production is also estimated to rise by 1% MoM [9] - Electrolyte production is expected to be flattish MoM [11] Market Sentiment and Demand - The market sentiment is influenced by positive discussions and hopes for supply-side reforms in China, which have led to increased interest in equities and futures related to battery materials [1] - The demand for ESS batteries is forecasted to continue its upward trend, with a 4% MoM increase expected [1]

Investment Rating - The report maintains an Overweight rating for Daqo, while Xinyi Solar and Flat Glass are rated Neutral, and LONGi and Tongwei are rated Underweight [31][24]. Core Insights - The Chinese solar industry is facing challenges due to aggressive capacity expansion, leading to significant cash losses for many producers. The government is expected to intervene to address low-price competition and promote the exit of outdated production capacity [3][6][5]. - The WIND Solar Power Index, which includes 30 major A-share solar stocks, saw a 3% increase on July 2, 2025, following President Xi's remarks on potential supply-side reforms, while HK-listed solar stocks surged by approximately 10% [5][2]. - Current valuations for major A-share solar manufacturers are at 1.6x forward P/B multiple, while H-share solar glass makers trade at 0.8x, indicating a less attractive risk/reward scenario compared to previous supply-side reform cycles [23][24]. Summary by Sections Market Dynamics - Solar module prices have decreased from approximately Rmb 2.0/W in 2022 to Rmb 0.7/W in July 2025, and polysilicon prices dropped from Rmb 300/kg to Rmb 35/kg, primarily due to an unbalanced supply and demand outlook [6][3]. - The majority of solar manufacturers are currently generating net losses, with over 50% of module sales volume directed to overseas markets, effectively subsidizing global energy transition efforts [6][3]. Trading Implications - The sector has historically rebounded by an average of 7% during four previous instances of government intervention news, but subsequent de-rating trends have been observed [16][4]. - The report suggests a cautious approach to trading in the solar sector, as the market may already be aware of the difficulties in implementing effective policy interventions [16][24]. Company Analysis - Daqo is highlighted as a standout investment opportunity due to its undemanding valuation at 0.2x FY25 P/BV, while LONGi and Tongwei are viewed as unattractive compared to peers even under a potential supply-side reform scenario [24][31]. - The report ranks companies based on risk/reward considerations, with Daqo at the top, followed by Xinyi Solar and Flat Glass, while LONGi and Tongwei are at the bottom of the list [24][31].

Investment Rating - The report does not explicitly provide an investment rating for the industry discussed Core Insights - The report highlights the potential for sustained lower interest rates in Singapore due to recent property cooling measures, which may impact the housing market and monetary conditions [1] - It discusses the implications of supply-side reform 2.0 in China, driven by prolonged PPI deflation and profitability concerns, with a focus on targeted sectors and specific measures [9] - The report anticipates a 70% chance of a 25bps cut in Malaysia's Overnight Policy Rate (OPR) due to recent economic indicators suggesting downside risks to GDP growth [2][10] Summary by Sections Economic Indicators - In China, CPI is expected to inch up to 0.0% YoY, while PPI contraction could narrow to -3.1% YoY in June [2] - Taiwan's CPI is projected to benefit from TWD appreciation, with exports expected to grow at 21% YoY [2] - South Korea's Bank of Korea is expected to hold the rate at 2.50% with potential hawkish signals [2] Inflation Forecasts - India's headline CPI is expected to fall to 2.2% YoY in June 2025, influenced by favorable base effects and lower vegetable prices [4] Key Events and Predictions - Upcoming key events include CPI releases for Thailand, Taiwan, and China, as well as the Bank of Malaysia's OPR decision [8][10] - The report notes that the Bank of Korea may prefer a wait-and-see approach until the October meeting to assess housing prices and fiscal stimulus impacts [10] Trade Ideas - Recommendations include taking profit on long USDIDR put spreads and going long on 10-year Indonesian government bonds [9][13] - A strategy to short SGD against a basket of currencies is also suggested, with a target of 98 and a stop of 100.5 [13]