Investment Rating - The report indicates a cautious outlook for the Chinese economy, suggesting a potential demand cliff in H2 2025, leading to a GDP growth forecast drop to 4.0% year-on-year from approximately 5.1% in H1 2025 [3][4]. Core Insights - The report highlights a recurring pattern in China's economic performance, where optimism in the first half of the year is often followed by disappointing outcomes in the second half, particularly in 2023 and 2024 [2]. - Austerity measures initiated in mid-May are expected to significantly impact consumption, particularly in the services sector, leading to a notable slowdown in retail sales growth to 3.1% year-on-year in H2 from an expected 5.1% in H1 [8][11]. - The property market continues to face severe challenges, with new home sales volume and value declining significantly, indicating a prolonged correction phase [32][35]. Summary by Sections Economic Outlook - The report anticipates a demand cliff in H2 2025 due to multiple factors, including austerity measures, a payback effect from durable goods sales, and ongoing issues in the property sector [3][4]. - GDP growth is projected to decrease to 4.0% year-on-year in H2 from around 5.1% in H1 2025 [3]. Austerity Measures - The new anti-extravagance campaign has led to a significant drop in demand for services, particularly in the catering and alcohol sectors, with retail sales growth expected to slow to 3.1% year-on-year in H2 [6][11]. - The average funding for the consumer trade-in program is projected to decrease, further impacting retail sales growth [7][13]. Property Market - The property market is entering its fifth year of correction, with new home sales and prices continuing to decline, particularly in large cities [32][33]. - Existing home prices in tier-1 cities fell by 0.9% in April-May 2025, indicating ongoing weakness in the housing market [34]. Export Sector - China's export growth is expected to slow sharply in H2 2025 due to payback effects from front-loading and high tariffs, with a full-year export growth forecast of 0.0% [44][45]. - High-frequency data indicates strong headwinds for exports, with manufacturing sector PMIs reflecting contraction [45][46]. Investment Trends - Investment growth in key sectors has decelerated, with significant declines noted in the solar and lithium-ion battery sectors, highlighting the need for regulatory intervention [26][27]. - The report emphasizes that the ongoing issues of overinvestment and capacity underutilization are likely to create short-term economic headwinds [24][25].