Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Economics - **Context**: The conference call discusses the outcomes of the mid-year Politburo meeting and US-China trade negotiations Core Insights and Arguments 1. **GDP Target and Stimulus**: The Politburo is determined to meet a 5% GDP target for the year but shows no urgency for large-scale stimulus following a strong performance in the first half of 2025. Incremental measures will likely be implemented to support this goal [1][3][5] 2. **Monetary Policy**: The meeting removed previous mentions of "timely rate and RRR cut," indicating that rate cuts are not a near-term priority. The focus will be on maintaining abundant liquidity and lowering financing costs [5][3] 3. **Fiscal Policy**: The Politburo plans to accelerate government bond issuance without hinting at an interim budget revision. This could support credit impulses in the summer [5][9] 4. **Consumption Focus**: There is a shift in consumption policies towards services, with new growth areas being cultivated. The absence of mentions regarding equipment upgrades suggests a potential policy shift [5][3] 5. **Property Sector**: Limited attention was given to the property sector, with "urban renewal" being the only focus. The Politburo did not reiterate intentions to stabilize the property market, indicating that local governments may bear the burden of any necessary actions [5][3] 6. **Trade Negotiations**: The recent US-China trade talks ended with a 90-day extension of tariffs, which was below expectations. The focus on structural issues may complicate future negotiations [7][8] Additional Important Points 1. **Future Planning**: The fourth Plenary Session is scheduled to discuss the 15th Five-Year Plan, with expectations for high-level guidance but no major policy shifts anticipated [4][6] 2. **Regulatory Focus**: The leadership emphasized regulating disorderly competition and local government behavior, aligning with expectations for supply-side reforms [5][3] 3. **Market Sentiment**: The outcomes of the Politburo meeting and trade talks may weigh on near-term market sentiment, creating uncertainty in the economic outlook [1][7] This summary encapsulates the key points discussed in the conference call, providing insights into the current economic strategies and challenges facing China.

Summary of Key Points from the Conference Call Industry Overview - **Global Supply Chain**: The report highlights ongoing supply chain disruptions and the responses from corporates and policymakers to address these issues [1] Key Insights on China’s Export Performance - **Export Resilience**: China's total exports exceeded expectations in June, with shipments to the US finding a "tentative trough" and expected to remain resilient in the second half of 2025 [2] - **Support Factors**: Factors supporting Chinese exports include transshipment to the US, supply chain extension to ASEAN, new demand from emerging markets, and underappreciated competitiveness [2] - **Payback Effect**: The estimated payback effect on exports is around US$32.3 billion, or 0.9% of annual exports, which is considered meaningful but manageable [2] - **Future Outlook**: While trade volatility with the US and EU may increase in Q3 2025, overall resilience in Chinese exports is anticipated for H2 2025 [2] Brazil Railroads and Shipping Insights - **Truckers' Margins**: Data as of July 11 shows truckers' margins dropping by 0.4 percentage points week-over-week, but increasing by 4.3 percentage points over four weeks on average [7] - **Harvesting Progress**: As of early July, 57% of the planted area has been harvested, with corn farmer selling remaining slower than average, while soy is nearly 82% sold for the year [7] - **Logistics Demand Peak**: The moderation in truckers' margins may indicate that the peak logistics demand for corn has been reached, suggesting that future harvesting may not be as effective without increased farmer selling [7] Global Shipping Trends - **Capacity Growth**: A capacity growth of 16% year-over-year is expected in August, compared to 10% in July, indicating increased shipping capacity [14] - **Air Freight Rates**: Air freight rates showed a decline of 2.5% year-over-year in July, compared to a decline of 2.0% in June, reflecting pressure on shipping costs [14] J&T Express in China - **Government Intervention**: The State Post Bureau of China indicated potential government intervention to address "involutionary competition" in the express industry, which may ease pricing pressures for e-commerce parcel players [15] - **Earnings Visibility**: J&T Express, impacted by tough competition in the first half of 2025, may see improved earnings visibility in the second half of 2025 as its strategy balances market share and profitability [15] Additional Considerations - **Analyst Certification and Disclosures**: The report includes important disclosures regarding potential conflicts of interest and the objectivity of the research [4][5] - **Investment Ratings**: Citi Research's investment ratings distribution shows 58% of companies rated as Buy, 32% as Hold, and 9% as Sell, with a significant percentage of these companies being investment banking clients [23] This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the discussed topics.

Investment Rating - The report maintains a low expectation for cyclical policy changes in the upcoming mid-year Politburo meeting, indicating a cautious investment outlook for the industry [3][4][5]. Core Insights - Policymakers are likely to adopt a wait-and-see approach while leaving room for small-scale support measures, particularly a potential quasi-fiscal stimulus of approximately RMB500 billion [3][6][8]. - The focus on anti-involution initiatives suggests a shift towards Supply Side Reform 2.0, with expected actions to cut low-efficient capacity and enhance supply for higher-end products [4][5]. - The upcoming Fourth Plenary Session of the 20th Party Congress may provide high-level guidance on the 15th Five-Year Plan, emphasizing strategic planning over numeric targets [5][6]. Summary by Sections Policy Tools - Monetary policy is expected to include a 10 basis points cut in the policy rate and a 50 basis points reduction in the reserve requirement ratio (RRR) [6][7]. - Structural policy tools will likely be reactivated, with a focus on a size of approximately RMB500 billion for policy-finance instruments [6][7]. - Fiscal policies will not see an interim budget revision or an increase in government bond quotas, but will include continued trade-in policies, childcare subsidies, and further property support [6][7]. Supply Side Reform - The report anticipates various actions across sectors, including capacity cuts, regulation tightening, and fine-tuning of industrial policies [4][7]. - The emphasis on medium-term structural issues will likely include discussions on economic rebalancing, particularly in consumption and industrial policies [5][6].

Investment Rating - The report maintains a cautious stance on inflation forecasts while awaiting further policy actions [3][19]. Core Insights - The year-on-year Consumer Price Index (CPI) turned positive in June, marking a surprise after four consecutive negative readings, which may indicate potential reflation in China [3][4]. - The Producer Price Index (PPI) deflation deepened unexpectedly, highlighting a divergence in price trends among different sectors, particularly between auto and steel prices [4][19]. - The report emphasizes the importance of supply-side reforms (SSR2.0) and the role of demand in shaping inflation expectations [19]. Summary by Sections CPI Analysis - The CPI reading for June was +0.0% YoY, compared to a prior reading of -0.1% YoY, with a sequential change of -0.1% MoM [3][5]. - Significant price increases were noted in the "other goods and services" category, which includes jewelry, with a +8.1% YoY change [5][8]. - Core inflation rose by +0.7% YoY, with core goods prices increasing by 0.9% YoY [5][19]. PPI Analysis - The PPI reading was -3.6% YoY, contrasting with market expectations of a narrower contraction [4][19]. - The PPI for the auto sector showed stabilization, while ferrous metals and non-metallic minerals reported negative changes, indicating a mixed outlook for SSR2.0 candidates [4][19]. Supply Side Reform Insights - The report suggests that the upcoming Politburo meeting and action plans from relevant ministries will be crucial for future inflation trajectories [19]. - The divergence in price trends between sectors like steel and auto underscores the need for targeted demand-side policies [19].

Investment Rating - The report maintains a GDP growth forecast of 4.7% YoY for 2025E [5] Core Insights - China's economy showed resilience in April despite trade tensions, with a real growth rate potentially exceeding 5.0% YoY, driven by strong industrial production growth of 6.1% YoY and services production index rising 6.0% YoY [3][10] - The exports-driven growth model appears to be re-emerging, with external demand outpacing domestic demand, although domestic retail sales and fixed-asset investment have weakened more than expected [4][10] - The report anticipates limited fiscal policy changes, with only a 10 basis points policy rate cut and a 50 basis points RRR cut expected in the second half of 2025 [5] Economic Performance - Industrial production exceeded expectations at 6.1% YoY in April, while fixed-asset investment softened to 4.0% YoY for January-April [10][11] - Exports-oriented sectors supported industrial production, with significant growth in machinery and equipment exports, while the property sector showed signs of weakness [12] - Retail sales growth decelerated to 5.1% YoY in April, falling short of market expectations, primarily due to declines in petrol and car sales [18][23] Sector Analysis - The new economy sectors, particularly high-tech, continued to perform well, with value added expanding 10.0% YoY and industrial robots' output surging 51.5% YoY [12] - The property sector showed marginal softening, with property sales down 2.8% YoY in volume terms and property investment contracting 10.3% YoY in the first four months [12] - Retail sales of home appliances and furniture remained strong, with growth rates of 38.8% YoY and 26.9% YoY respectively, while auto sales faced challenges [20][21]