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Haitong: Promoting the prosperity of the automobile industry by exchanging old for new, AI driven autonomous driving technology will be implemented.

Haitong released a research report stating that the valuation of the overall market in the first half of 2024 is hovering around the median. Against this backdrop, the valuation performance of the automotive sector as a whole is poor, but there is still differentiation. After the median volatility in the dealer sector, Q2 saw a significant rise, while the other sectors all exhibited median volatility. When comparing various industry sectors horizontally, the valuation level of the automotive sector in the first half of the year remains at a relatively high level, mainly due to the strong production and sales of automobiles lifting the overall valuation level of the sector. Currently, the policy of replacing old vehicles with new ones has a certain support effect on the prosperity of the automotive industry. After the end of the price war in the passenger vehicle industry, sales volume and profitability are expected to gradually recover; the recovery in the commercial vehicle industry is driven by exports, and there is still internal repair momentum in the domestic economy. Key points from Haitong are as follows: - Domestic automotive sales in the first half of 2024 reached 14.05 million units, up by 6.1% year-on-year, with the performance of passenger vehicles on par with the overall automotive industry. - According to data from the National Bureau of Statistics, the automotive manufacturing industry achieved a total operating income of 4.7672 trillion yuan in the first half of 2024, an increase of 6.1% year-on-year, and a total profit of 237.7 billion yuan, up by 9.2% year-on-year. The industry sales profit margin (total profit/total operating income) is 5.0%, and the three expense ratio totals about 5.4%. Compared with the same period in 2023, the sales net profit margin has slightly increased, which we judge to be mainly due to the subsidy policy driving up sales volume, but the ongoing price war in the industry continues to disrupt profitability. - The replacement of old vehicles with new ones in Q2 of 2024 boosted the prosperity of the industry, but the profitability of the passenger vehicle sector was affected by the price war. - Overall, the profitability of the vehicle sector in Q2 of 2024 is not bad, indicating that the impact of the price war has eased. The replacement of old vehicles with new ones has boosted the industry's prosperity, and large models driving smart driving are beginning to drive corporate operations. Haitong recommends Li Auto, Inc. Sponsored ADR Class A (02015), BYD Company Limited (01211), LEAPMOTOR (09863), and pays attention to Tesla, Inc. (TSLA.US), and XPeng, Inc. ADR Sponsored Class A (09868). - In the parts sector, the main focus is on industrial upgrading and prosperity growth. Recommendations include Bethel Automotive Safety Systems (603596.SH), NEXTEER (01316), Ningbo Tuopu Group (601689.SH), Shanghai Baolong Automotive Corporation (603197.SH) for industrial upgrading, and Anhui Zhongding Sealing Parts (000887.SZ), Foryou Corporation (002906.SZ), and Huayu Automotive Systems (600741.SH) for prosperity growth. Others recommended are Shanghai Hajime Advanced Material Technology (301000.SZ), Sichuan Chuanhuan Technology (300547.SZ), and Rayhoo Motor Dies (002997.SZ). - In the commercial vehicle sector, recommendations include Sinotruk Jinan Truck (000951.SZ), CIMC Vehicles (301039.SZ), Weichai Power (000338.SZ), and Yutong Bus Co., Ltd. (600066.SH) for opportunities in both domestic recovery and overseas growth. Risk warnings: Risks of lower-than-expected vehicle sales; risks of significant fluctuations in raw material prices; risks of significant fluctuations in exchange rates.
16/09/2024

Guosheng Securities: Consumer battery downstream demand recovers, emerging markets are expected to create marginal opportunities.

Guosheng Securities released a research report stating that lithium batteries can be divided into cylindrical lithium batteries, square lithium batteries, and polymer soft pack lithium batteries according to their packaging forms, with the polymer soft pack form being more suitable for consumer battery scenes. According to EVTank data, smartphones and laptops are the two largest application markets for small soft pack batteries, accounting for nearly 50% of the market. Due to the year-on-year declines of 3.2% and 13.9% in global smartphone and laptop shipments in 2023, the global small soft pack lithium-ion battery shipments in 2023 decreased by 2.6% to 5.48 billion units. With the basic completion of destocking in the downstream of consumer electronics, it is expected that the consumer battery industry will see a recovery. Guosheng Securities' main points are as follows: In 2023, the top three companies in global small soft pack lithium battery shipments are ATL, Zhuhai CosMX Battery, and Ganfeng Electronics, with domestic companies expected to continue to increase their market share in the future. Looking at the competitive landscape of small soft pack lithium-ion batteries in 2023, ATL under TDK ranks first with shipments of over 1.3 billion units, Zhuhai CosMX Battery has risen to the second position globally, and Ganfeng Electronics has rapidly climbed the ranks through large shipments of TWS, e-cigarettes, and smart wearable batteries. In addition, the top ten companies globally also include LGES, Liven, Eve Energy Co., Ltd., Shenzhen Highpower Technology, Chongqing Vdl Electronics, BYD Company Limited, and Zhongshan Tianmao. As Japanese and Korean companies gradually exit the consumer battery market, the market share of domestic manufacturers is expected to continue to rise. It is estimated that the demand for consumer lithium batteries will reach 123GWh in 2024, an increase of 8.8% compared to the previous year. The demand for lithium batteries is expected to reach 165GWh by 2028, with a CAGR of 7.9% from 2023 to 2028. In the traditional consumer electronics sector: annual growth is relatively stable Smartphones: In 24Q2, smartphone shipments increased by 6.5% year-on-year, achieving positive growth for four consecutive quarters. The development of GenAI functions is expected to drive sustained growth in the global smartphone market. IDC predicts that global smartphone shipments will grow by 4% in 2024, with a CAGR of 2.3% from 2024 to 2028; Laptops: After experiencing continuous year-on-year declines for eight consecutive quarters, the first two quarters of 2024 saw year-on-year growth, with a 3.0% increase in shipments in 24Q2. It is expected that AIPC will drive simultaneous increases in sales volume and prices. IDC predicts that global laptop shipments will increase by 2.0% in 2024, with a CAGR of 2.4% from 2024 to 2028; Tablets: Thanks to the arrival of the new product cycle, global tablet shipments increased by 22.1% in 24Q2, with Huawei and Xiaomi both increasing by 40% and 95%, respectively. In the emerging consumer electronics sector: AR/VR, portable energy storage, electric bicycles, and low-altitude economy have great growth potential Wearable devices: In 24Q1, global wearable device shipments reached 113 million units, an 8.8% increase. IDC predicts that wearable device shipments will increase by 10.5% in 2024, with a CAGR of 3.6% from 2024 to 2028. The CAGR for VR and AR shipments are 29.2% and 87.1% respectively; Portable energy storage: From 2016 to 2021, the CAGR of global portable energy shipments and market size was 148% and 184% respectively. With the increase in outdoor participation by residents and the continuous strengthening of disaster preparedness awareness, the portable energy storage market will develop rapidly; Electric bicycles: In 2022, global electric bicycle shipments reached 87 million units, an increase of 13.6%. Due to fluctuations in lithium carbonate prices and the impact of the sharing market, the sales of lithium battery electric bicycles reached 27.35 million units, a decrease of -0.8%. It is expected that the penetration rate of lithium batteries will gradually increase in the future. Electric tools: In 2022, the global shipments of electric tools were 470 million units, a year-on-year decrease of 19.3%, with electric garden tools being the only segment of electric tools that saw an increase in shipments in 2022. EVTank predicts that the shipments and market size of global electric tools will grow at a CAGR of 10.9% and 11.3% from 2022 to 2026. Low-altitude economy: This year, the low-altitude economy was mentioned for the first time in the government work report. As of the end of March 2024, China had a total of 69,000 low-altitude economy-related companies, with more than 1,600 newly added in 24Q1. EVTank predicts that the global eVTOL fleet will reach 26,000 by 2035, with a total market size of $160 billion. Investment recommendations: In the traditional sector: with the basic completion of destocking in the downstream of consumer electronics and the increase in demand for traditional products brought about by AI applications; in the emerging sectors: the rapid development of emerging sectors such as AR/VR, portable energy storage, electric bicycles, drones, etc. will drive consumer battery demand; Increase in market share of domestic companies: as Japanese and Korean companies gradually exit the global consumer battery market, the market share of domestic manufacturers is expected to continue to rise. It is recommended to pay attention to Sunwoda Electronic (300207.SZ), Zhuhai CosMX Battery (688772.SH), Shenzhen Highpower Technology (001283.SZ), and Jiangsu Azure Corporation (002245.SZ). Risk warning: Demand for downstream consumer batteries falls short of expectations, fluctuations in raw material prices, and risks in model calculations.
16/09/2024

Huachuang Securities: Base effect combined with policy adjustments leading to high growth in monthly life insurance premiums.

Huachuang Securities released a research report stating that driven by base effects and policy adjustments, the growth rate of personal insurance premiums in August showed a small peak on a monthly basis; the prosperity of property insurance has slightly increased, with PICC's car insurance premiums continuing to rise, expected to contribute mainly to underwriting profits, but the growth rate of agricultural insurance is still slightly lower than expected. Looking ahead to the second half of the year, the growth logic of NBV in personal insurance may have opportunities for both volume and price driving, as further interest rate cuts are expected to bring continued improvement in value rates. With a low base for new policies, positive growth in premiums is expected; in terms of property insurance, if there is no extreme weather interference in the second half of the year and considering the impact of typhoons in the background of Q3 last year, COR may improve year-on-year. The base effect on the investment side will further weaken. The main points of Huachuang Securities are as follows: Personal insurance business: Taiping and New Chinas cumulative premium growth rates for January-August have reversed, with a high increase in single-month premiums in August According to the latest disclosures by insurance companies, the personal insurance premiums and year-on-year growth rates of listed insurance companies from January to August 2024 are as follows: China Life Insurance 564.9 billion yuan, +5.9% year-on-year; Ping An 409.7 billion yuan, +8.9% year-on-year; Taiping 191.7 billion yuan, +1.5% year-on-year; New China 130.3 billion yuan, +1.9% year-on-year; PICC 133.5 billion yuan, +7.0% year-on-year. The order of personal insurance premium growth rates in January-August 2024 is as follows: Ping An > PICC > China Life > New China > Taiping. However, the premiums in August all increased year-on-year, with significant improvements in growth rates: China Life +29.0%, +20.7%; Ping An +36.0%, +18.8%; Taiping +53.0%, +65.8%; New China +122.0%, +110.7%; PICC +79.2%, +56.4%. Base effects combined with policy adjustments have led to a high level of prosperity in personal insurance premiums for August. In the same period last year, when the designated interest rate for insurance products was officially lowered to 3.0%, and affected by the overdraft of previous demand, 2023m8 insurance premiums for insurance companies saw a significant decline in growth rates. In August 2023, the year-on-year growth rates for China Life/Ping An/Taiping/New China were -10.3%/+1.5%/+3.4%/-6.8%, while PICC increased by 42.0% year-on-year, mainly due to the extremely low base brought about by the endowment insurance in August 2022. This year in August, aside from the low base, due to the further reduction of scheduled interest rates for traditional insurance, dividend insurance, and universal insurance in September/October, benefiting the short-term sales, the premiums of listed insurance companies all showed high growth in August, with a significant acceleration in growth rates. PICC: New policies are breaking out, while renewals are playing a stabilizing role. Cumulative premium growth rates have further expanded, with life insurance up 5.7% year-on-year and health insurance up 10.1% year-on-year. For life insurance, new policies for endowment insurance decreased by 10.3% year-on-year, with a 9.2% narrowing in month-on-month decline; in August, the year-on-year growth rate for new endowment insurance policies was +417.8%, benefiting significantly from the short-term sales during the period of interest rate adjustment. Renewal premiums increased by 23.3% year-on-year. Property insurance business: Listed insurance companies' premium growth rates are on the rise According to the latest disclosures by insurance companies, the cumulative property insurance premiums of listed insurance companies for January-August 2024 increased year-on-year as follows: PICC 382.2 billion yuan, +4.3%; Ping An 211.0 billion yuan, +5.3%; Taiping 142.2 billion yuan, +7.7%. The order of increase in property insurance premiums from January to August 2024 is Taiping > Ping An > PICC. In August, the property insurance premiums all increased, with Taiping showing an accelerated growth rate: PICC +7.0%, -0.6%; Ping An +12.5%, -6.1%; Taiping +9.5%, +3.5%. Growth rates in August: Ping An > Taiping > PICC. People's Insurance Company of China (PICC) Property Insurance From a cumulative perspective, the overall growth rate increased by 0.3%, mainly contributed by car insurance/accident and health insurance/liability insurance/guarantee insurance, partially offset by the positive impact. Car insurance increased by 3.0% year-on-year, with a month-on-month increase of 0.2% on the basis of an increasing base. In August, there was still no apparent boost in demand for the automobile market, with a year-on-year decline of 5.0% in car sales. However, sales of new energy vehicles continued to show an upward trend, with a year-on-year increase of 30.0% in August, expected to constitute a significant increase in the field of car insurance. For non-car insurance, accident and health insurance/liability insurance increased by 7.2%/12.6% year-on-year, with month-on-month growth rates of 1.2%/1.1%, and a month-on-month increase in guarantee insurance of 3.3% to -8.3%; agricultural insurance/enterprise property insurance/freight insurance increased by 1.7%/2.4%/7.7% year-on-year, with month-on-month growth rates of -0.7%/-0.5%/-1.2%. From the perspective of August alone, car insurance growth rate increased by 0.5% to 4.4%, guarantee insurance growth rate reversed to 27.7%, agricultural insurance premiums decreased year-on-year (-9.7%), but increased month-on-month by 5.7%. Investment recommendation: Currently, we recommend China Pacific Insurance (601601.SH), a solid basic life insurance company, and PICC P&C (02328), a leading company with long-term investment value. Risk warning: Regulatory changes, reforms falling short of expectations, worsening natural disasters, continuous decline in long-term interest rates, and volatility in equity markets.
16/09/2024

Guosheng Securities: Environmental Protection Industry Transformation and Upgrading, Grasping the New Opportunities of Water Management and Solid Waste Resource Utilization.

Guosheng Securities released a research report stating that the overall operating income of the environmental protection industry in the first half of 2024 was 167.04 billion yuan, with a year-on-year growth rate of 2.6%; the net profit attributable to the parent company was 12.3 billion yuan, with a year-on-year growth rate of -13.2%, mainly due to fluctuations in product and raw material prices leading to a narrowing of profits. The overall demand from the industry's upstream and downstream sectors maintained a stable growth trend, but due to intense market competition, profit margins have been squeezed. The industry is undergoing transformation and upgrades, seizing new opportunities in water services and solid waste recycling. Currently, the environmental protection sector is highly differentiated, and it is optimistic about companies with outstanding technological capabilities, excellent cash flow, and high dividends from undervalued quality state-owned enterprises. Guosheng Securities' main points are as follows: Pressure on performance in the first half of 2024, with a slight decline in overall profitability According to the Guosheng Environmental Protection Portfolio, the overall operating income of the environmental protection industry in the first half of 2024 was 167.04 billion yuan, with a year-on-year growth rate of 2.6%; the net profit attributable to the parent company was 12.3 billion yuan, with a year-on-year growth rate of -13.2%, mainly due to fluctuations in product and raw material prices leading to a narrowing of profits. Revenue in the second quarter of 2024 continued to grow by 0.5% year-on-year, while net profit attributable to the parent company declined by 31.0% year-on-year. The overall demand from the industry's upstream and downstream sectors maintained a stable growth trend, but profit margins were squeezed due to intense market competition. Overall decline in industry profitability, with proper cost control The overall gross profit margin of the environmental protection sector in the first half of 2024 was 24.5%, a decrease of 0.3 percentage points from the same period last year; the overall net profit margin was 8.1%, a decrease of 1.4 percentage points from the same period last year. This may be related to a decrease in investment return rate year-on-year by 0.6 percentage points, an increase in operating cost ratio year-on-year by 0.3 percentage points, and an increase in asset impairment rate year-on-year by 0.1 percentage points. In the first half of 2024, the industry's overall period expense ratio was 14.4%, unchanged from the same period last year, indicating strong cost control capabilities. Significant growth in operating cash flow net amount for the industry in the first half of 2024, with an increase in investment cash outflow The operating cash flow net amount for the environmental protection industry in the first half of 2024 was 77.3 billion yuan, an increase of 34.9% year-on-year, mainly due to a decrease in purchases and an increase in receipts. Among them, the solid waste management sector had 68.1 billion yuan (an increase of 104.3% year-on-year), maintaining ample operating cash flow; the atmospheric governance sector had 1.7 billion yuan (an increase of 160.0% year-on-year), the water treatment sector had 1.5 billion yuan (an increase of 156.0% year-on-year), and the operating cash flow turned positive; the water service operation sector had 33.6 billion yuan (a decrease of 30.2% year-on-year), with a decline in cash flow. Financing cash flow was 109.1 billion yuan (an increase of 44.3% year-on-year), and net outflow of investment cash flow was 297.9 billion yuan (an increase of 25.3% year-on-year). As environmental protection policies continue to be introduced, industry demand is further released, leading to an increase in external investments. Sub-sectors performance differentiation Solid waste management and water service operations are developing well, while energy conservation lags behind. In terms of revenue growth, the performance of solid waste management/atmospheric governance/water service operation/water treatment/monitoring/energy conservation in the first half of 2024 showed year-on-year growth rates of 13.9%/3.6%/3.5%/-1.4%/-2.4%/-32.1%; in terms of net profit attributable to the parent company, the performance of monitoring/solid waste management/water service operation/atmospheric governance/water treatment/energy conservation in the first half of 2024 showed year-on-year growth rates of 45.0%/15.7%/-2.4%/-15.7%/-42.0%/-388.5%. The solid waste sector is benefiting from the stable operation of waste incineration and power generation projects, gradually strengthening profitability; hazardous waste resource utilization is reducing costs and increasing efficiency, enhancing industry prosperity. Water service operations benefit from increased operational efficiency and stable revenue growth. Atmospheric governance benefits from continued policy tightening, maintaining stable revenue. Energy conservation and water treatment are constrained by intensified market competition, narrowing profit margins, and facing pressure in the industry's development stage. Industry transformation and upgrading, seizing new opportunities in water services and solid waste resource utilization Currently, the environmental protection sector is highly differentiated, and it is optimistic about companies with outstanding technological capabilities, excellent cash flow, and high dividends from undervalued quality state-owned enterprises. Key recommendations include Beijing GeoEnviron Engineering & Technology, Inc.(603588.SH), which benefits from carbon neutrality and expanding demand in the resource utilization field; and Qingdao Huicheng Environmental Technology Group(300779.SZ), which won major hazardous waste projects and is entering the waste plastic recycling market. Undervalued, high dividend, excellently managed, and continuously growing environmental state-owned enterprises Jiangxi Hongcheng Environment(600461.SH) and Grandblue Environment(600323.SH). Risk warning: Environmental policies and inspection efforts are lower than expected, project construction progress is slower than expected, and increased industry competition poses risks.
16/09/2024

Open Securities: Online alcohol sales were good in August, focus on packaged drinks and snacks.

Open Source Securities released a research report stating that the online sales performance of alcoholic beverages in August was good. As Mid-Autumn Festival approaches, the liquor market has already started stocking up for the festival, with channels more inclined towards top brands that capture consumers' minds quickly. There is an increasing differentiation within the liquor industry. In the mass-market segment, packaged beverages benefited from the peak summer consumption season, performing well in sales. The snack industry continues to show dividends, with online sales in August holding steady compared to the previous year. Considering the continuous boost from events like summer vacation, Mid-Autumn Festival, and National Day, companies that focus on launching new products and entering new channels are expected to benefit. It is recommended to pay special attention to the snack sector of the mass-market. Key points from Open Source Securities: Alcoholic Beverages: Online sales revenue growth, concentration of liquor brands declining while beer brands are increasing In August 2024, Alibaba's alcoholic beverage industry online sales reached 8.0 billion yuan, a year-on-year increase of 5.0%. Domestic liquor sales performed relatively well, with a year-on-year increase of 21.3%. The online sales of domestic liquor brands accounted for the highest proportion, reaching 66%. The concentration of top liquor brands in the industry decreased by 36.2 percentage points to 43.5% month-on-month. The concentration of top beer brands increased by 2.2 percentage points month-on-month to 32.7%. Food: Sales of snack foods remain steady, while sales of grains, oils, and fast food decline Snack Foods: In August 2024, Alibaba's online sales of snack foods reached 27.7 billion yuan, essentially unchanged year-on-year. Sales volume increased by 1.3% year-on-year, while the average selling price decreased by 1.1% year-on-year. Traditional pastries performed well, with a 43% year-on-year increase. The concentration of top snack food brands in the industry decreased by 1.7 percentage points to 8.3%. Grains, Oils, and Fast Food: In August 2024, Alibaba's online sales of grains, oils, and fast food reached 22.2 billion yuan, a year-on-year decrease of 8.3%. Sales volume increased by 4.0% year-on-year, while the average selling price decreased by 12.1% year-on-year. Baking ingredients performed well in August with a 30.6% year-on-year increase. The concentration of top brands in the grains, oils, and fast food industry increased by 0.75 percentage points to 13.62% month-on-month. Beverages and Instant Drinks: Online sales of dairy products and instant drink cereals decrease, while packaged beverage sales increase Dairy Products: In August 2024, Alibaba's online sales of dairy products reached 9.8 billion yuan, a year-on-year decrease of 5.9%. Sales volume decreased by 2.4% year-on-year, while the average selling price decreased by 3.6% year-on-year. Low-temperature milk products performed well, with a 109.2% year-on-year increase in August. Packaged milk accounted for a high percentage of online sales, reaching 43.5%. The concentration of top dairy product brands in the industry decreased by 10.3 percentage points to 36.7% month-on-month. Instant Drink Cereals: In August 2024, Alibaba's online sales of instant drink cereals reached 0.8 billion yuan, a year-on-year decrease of 21.3%. Sales volume decreased by 20.5% year-on-year, while the average selling price increased by 1.7% year-on-year. The concentration of top brands in the instant drink cereals industry decreased by 0.41 percentage points to 32.7% month-on-month. Packaged Beverages: In August 2024, Alibaba's online sales of packaged beverages reached 6.4 billion yuan, a year-on-year increase of 7.7%. Sales volume increased by 19.2% year-on-year, while the average selling price decreased by 9.6% year-on-year. In August 2024, carbonated beverages performed well with a 29.8% year-on-year increase; fruit-flavored beverages followed with a 20.2% year-on-year increase. Ready-to-drink tea accounted for a high percentage of online sales, reaching 17.2%. Stock Recommendations: It is suggested to pay more attention to Wuliangye Yibin (000858.SZ), Shanxi Xinghuacun Fen Wine Factory (600809.SH), Kweichow Moutai (600519.SH), etc. Risk Warnings: Lower-than-expected macroeconomic performance, food safety risks, and increased industry competition.
16/09/2024

Guosen: Switching fixed interest rates, increasing demand for insurance configuration.

Guosen released a research report stating that since August, the life insurance industry has been gradually switching products, driving a rapid increase in short-term premiums in the industry. With the continued switching of remaining products in September and the low base from last year, there is a positive outlook for the year-on-year increase in industry premium income. In addition, as the scale of premium income increases, it is favorable for insurance funds to allocate to high dividend (OCI equity) and long-term bond assets, which are relatively stable sources of incremental funds in the current market. It is recommended to pay attention to China Pacific Insurance (601601.SH) and China Life Insurance (601628.SH), which benefit from both assets and liabilities, and to maintain the "outperform the market" rating for these two insurers. "Speculative halts" activate short-term premium growth in the industry From January to August 2024, the five listed insurance companies on the A-share market achieved original insurance premium income of 2.1655 trillion yuan, a year-on-year increase of 5.6%. Influenced by the industry's planned interest rate switch, life insurance companies have increased their short-term sales efforts. Among them, Ping An Insurance, China Life Insurance, The People's Insurance, China Pacific Insurance, and New China Life Insurance saw year-on-year increases of 7.6%, 5.9%, 5.0%, 4.1%, and 1.9% in premium income in the first eight months, respectively. Recently, regulators have continued to guide the insurance industry to lower debt costs, reducing the interest rate risk under the current shortage of assets in insurance funds. As the only financial product in the market with medium to long-term liquidity attributes, savings-type insurance still has certain attractiveness, and "speculative halts" have activated short-term premium growth in the industry. Ordinary products switch interest rates as scheduled, increasing premium allocation demand for insurance funds Recently, in response to the policy of lowering interest rates, ordinary products in the life insurance industry completed the switch by the end of August, with the upper limit of the announced interest rate for newly filed ordinary insurance products being 2.5% (a decrease of 50bp). Looking at monthly premium income, listed insurers all achieved significant year-on-year increases. New China Life Insurance, PICC Life Insurance, Taiping Life Insurance, Ping An Life Insurance, and China Life Insurance saw monthly premium increases of 122%, 79%, 53%, 36%, and 29%, respectively. In September, dividend insurance and universal insurance will undergo product switching, favoring the continuation of premium growth in September. It is expected that the corresponding increase in premium will significantly increase the short-term asset allocation demand for insurance funds, along with factors such as the end of the quarter, with the core allocation direction possibly focusing on bonds and high dividend stocks measured at FVOCI. Property insurance premium growth picks up, with a significant year-on-year increase in monthly premium income As of the end of August, the "Big Three" collectively achieved property insurance premium income of 698.7 billion yuan, a year-on-year increase of 5.3%. Taiping Property Insurance, Ping An Property Insurance, and PICC Property Insurance saw year-on-year increases of 7.7%, 5.3%, and 4.3%, respectively. As of the end of July, PICC auto insurance and Taiping auto insurance businesses achieved year-on-year growth rates of 2.5% and 2.8%, respectively. Looking at monthly premium income, the three aforementioned insurers all achieved significant year-on-year improvements, with Ping An Property Insurance, Taiping Property Insurance, and PICC Property Insurance seeing year-on-year increases of 12.7%, 9.5%, and 7.0%, respectively. Since August, affected by frequent natural disasters and typhoons, the level of claims in the property insurance industry is expected to increase to some extent, but the overall risk level is manageable. The stability of the full-year COR of listed insurers is still promising. Risk warning: Market demand is lower than expected; agent reform is slower than expected; continuous volatility in the capital market; decline in long-term interest rates; stricter regulatory environment, etc.
16/09/2024

Zhongjin: Profit and valuation are both at cyclical bottoms, and the clearance of the steel industry is expected to further accelerate.

CICC released a research report stating that at the current point in time, both profitability and valuation of the steel industry are at a cyclical bottom, there is no need to be pessimistic. The industry consolidation is expected to further accelerate, with high value-added steel varieties production and sales advantages, core assets with high quality cash flow are expected to achieve profit and valuation repositioning, excess returns are expected. The report recommends focusing on two main themes: 1) investing in core manufacturing assets with stable cash flow and dividends at the bottom, and specifically recommends Baoshan Iron & Steel (600019.SH) and Hunan Valin Steel (000932.SZ); 2) leading companies in special steel materials, especially leaders in the sub-sectors that benefit from the recovery of the manufacturing industry and growth certainty, and specifically recommends TIANGONG INT'L (00826), the global leader in high-growth tool and die steel. Data: The National Bureau of Statistics announced macroeconomic data for August: crude steel production fell by 10.1% year-on-year to 77.69 million tons, net steel exports increased by 17.6% year-on-year to 8.99 million tons, and the apparent consumption of steel decreased by 12.8% year-on-year to 68.70 million tons. Demand continues to differentiate, with strong export performance Real Estate: The construction index has slightly improved but remains at a low level. In August, real estate investment completion/new construction area decreased by 8.5%/-17.2% year-on-year to 0.84 trillion yuan/57 million square meters, with narrower monthly declines of 0.5/2.3ppt; new home sales continued to operate weakly with sales value/sales area down by 17.1%/-12.6% year-on-year to 0.64 trillion yuan/65 million square meters, showing that the current real estate volume and price still face downward pressure. It is expected that the demand for steel in real estate may not significantly improve in the short term. Infrastructure: Funding and physical work are marginally stabilized, with infrastructure investment up by 4.4% year-on-year, and excavator working hours up by 3.3% to 93 hours. Manufacturing: The August manufacturing PMI dropped slightly by 0.3ppt to 49.1%, downstream sentiment is showing differentiation, with steady growth in production and sales in sub-sectors such as ships/engineering machinery. Export: Steel net exports in August increased by 17.6% year-on-year to 8.99 million tons, indicating strong external demand. However, global PMI is still in the contraction zone with a downward trend, coupled with the gradual narrowing of China's export steel price advantage, looking ahead we believe steel exports may show signs of a high-level downturn. Raw material supply and demand trend weakens, the profitability of the black industry chain is expected to undergo rebalancing Since the third quarter, prices in the black industry have weakened, with steel companies' profit margin falling below 5%, close to historical lows. Quality leading steel companies represented by Baoshan Iron & Steel/Hunan Valin Steel have shown steady profitability, with 1H24 ton steel net profit still maintained at over 100 yuan (the average for the steel industry being -45 yuan). The bottom excess profits continue to be sustained. Since September, raw material prices have continued to decline, rebar spot prices rebounded after hitting a low, with immediate production profits significantly rising to 70 yuan/ton, signaling a marginal recovery in industry profitability. Looking ahead, CICC expects that in the fourth quarter, Mongolian coal imports and overseas ore shipments will continue to increase, with the supply and demand weakening effect likely to keep raw material prices running at low levels. The profitability distribution of the black series is expected to undergo rebalancing, and steel companies with strong product structure advantages and bargaining power are expected to fully benefit, with profitability resilience possibly exceeding expectations. Risk factors: Deterioration in real estate market sentiment, global economic downturn.
16/09/2024

Zhongjin: Electricity price risk continues to be gradually released, regional differentiation intensifies.

Golden Finance released a research report stating that the overall performance of new energy electricity enterprises in the first half of 2024 was lower than market expectations. The profitability of new energy assets in the first half of 2024 continued to trend downwards, reflecting the pressure of decreasing utilization hours and comprehensive electricity prices, as well as the amplification of cost rigidity leading to a decline in profits. However, with frequent policies on environmental value and demand side in the industry, it is still recommended to focus on undervalued green energy tracks, and recommend CHINA POWER (02380) and Huaneng Power International, Inc. (00902). Industry data review: Regional differentiation is obvious, with better performance in the south, but regions like Northeast China, Hubei, Xinjiang, and Gansu are under pressure. Specifically: southern provinces have strong consumption capacity. Southeastern provinces (Jiangsu, Zhejiang, Shanghai, Anhui, etc.) have strong electricity demand, mainly depend on thermal power with strong regulation capacity, and wind and solar utilization rates are close to 100%. Southwest China (Sichuan, Chongqing, Yunnan, etc.) has resource and electricity price advantages, attracting high energy-consuming industries to move in, with high industrial production activity and wind and solar utilization rates above 97%. The consumption capacity in the three northern regions continues to be under pressure. Northeast China has weak demand, with wind/solar utilization rates in Eastern provinces declining by 3-4 percentage points compared to the previous year; Northwest China has a high proportion of clean energy but lacks regulation and transmission capacity. Inner Mongolia has strong electricity demand combined with poor wind resources, resulting in an improvement in consumption compared to the previous year. The consumption capacity of major hydropower provinces in central China is marginally declining. Performance review of electricity enterprises: In the first half of 2024, the profit of new energy electricity ranged from 0.12 to 0.26 yuan per kilowatt-hour, with a year-on-year decline of 11-13% for wind and 20-30% for solar; the price of green power rose and fell. Regarding consumption: wind utilization hours declined by a high single-digit percentage year-on-year, mainly due to poor wind resources, with the decline in the three northern regions greater than in southern regions, and the limit rate declining by less than 2 percentage points year-on-year. Solar utilization hours declined by a low single-digit percentage year-on-year, mainly due to limit restrictions, with the limit rate declining by over 3 percentage points year-on-year. In terms of electricity prices: The comprehensive electricity price accelerated its year-on-year decrease, with a larger decrease in solar compared to wind, mainly due to the rapid increase in scale of grid parity projects and a higher rate of increase compared to the same period last year. The trading price fluctuated, with limited impact on the comprehensive electricity price; solar faced greater pressure due to the time-of-use electricity price policy and concentrated output periods. Green power trading accounts for 8-13% of the market's electricity, with a premium of 4-5 points per kilowatt-hour; green certificate premiums range from 0.3-1 point per kilowatt-hour. While the unit premium has decreased year-on-year, the scale has increased rapidly. Outlook for the second half of 2024: New energy operators may face temporary pressure on volume and price, with expectations for a rebalance in consumption in the medium to long term. New energy prices may continue to be under pressure, but the impact is expected to weaken marginally. Since 2024, various policies have guided the decomposition of green electricity consumption responsibility towards users, with energy-intensive industries taking on the responsibility first. It is anticipated that the industry will evolve from current volume pricing pressure to short-term volume supplement pricing, and medium to long-term supply and demand rebalancing. At the same time, the acceleration of state subsidies repayment will ease the contradiction between high capital expenditure and leverage assessment, and the restrictions on equity financing. Risk factors: Unexpected rebound in limit rate, unexpected downward trend in market electricity prices, policies not meeting expectations.
16/09/2024

Tianfeng Pring's profit cycle tracking: M1, social financing pulse at a new low Maintaining the judgment that the annual profit point 2.0 is approaching.

Tianfeng released a research report stating that the leading indicators of the Pring cycle fell to a low level, while the coincident and lagging indicators both fell slightly. Export performance in August was mixed, PMI continued to decline, the impact of financial data "squeezing liquidity" continued, M1 reached a new low, the pulse of social financing fell back, and the role of government bonds in the credit structure was enhanced, with a significant divergence in household loans. Waiting for countercyclical policies to strengthen, maintaining the judgment that the market is approaching the inflection point 2.0 within the year. Tianfeng's main points are as follows: 1) The key contradiction for the market to find the bottom lies in whether it can anticipate the turning point of performance. The market bottom usually precedes the turning point of performance by 1-2 quarters. When the economic cycle is in Phases 2-4 of the Pring cycle (i.e. the phase when coincident indicators are trending upward), stocks tend to perform well. 2) The Pring coincident indicator is crucial, but it needs to be combined with leading indicators for a comprehensive judgment. Since the turning point of coincident indicators lags behind the index bottom, relying solely on coincident indicators requires more time for verification (at least 1-2 months of recovery is needed to confirm the low point), which may lead to biased market judgments. Therefore, we believe that incorporating leading indicators in the judgment process will enhance foresight in determining the economic bottom. The key to breaking through the bottom-finding period lies in the sustainability of M1 recovery, with household medium and long-term loans being the core indicator. Household medium and long-term loans often lead corporate medium and long-term loans at the top and are usually closer to the bottom. Also, during the market bottom-finding period, both these indicators show an increase in year-on-year terms. 3) Higher frequency leading indicators need to be reflected in monetary prices. The bottoming out of narrow liquidity and monetary prices is a sufficient but not necessary condition for the market to reach a bottom. There is a lag between the decline in monetary prices and the rebound in demand. Support for monetary prices to stabilize often occurs in Phases 1 and 2 of the Pring cycle, with the bottoming out of monetary prices often synchronizing with or preceding the period of economic recovery. The macroeconomic outlook still faces certain pressures, with the manufacturing PMI continuing to decline in August, while unofficial Chinese PMI rose into expansion territory. The pulse of social financing fell back, new government bond issuance increased, and new RMB loans increased mildly. The decline in M1 widened in August, while M2 remained stable. The stock of social financing fell back year-on-year, with excess liquidity increasing. In August, the incremental scale of social financing was 3.03 trillion yuan, 98.1 billion yuan less than the same period last year. Structurally, new government bond issuance increased, new RMB loans grew less, and off-balance sheet financing declined but remained positive. In terms of loan structure, new short-term loans for households increased significantly, while new medium and long-term loans turned negative year-on-year. For corporate loans, new medium and long-term loans for enterprises increased slightly, new short-term loans for enterprises narrowed their decline, bill financing saw a slight decrease year-on-year, and the credit structure still needs improvement. The leading indicators of the Pring cycle fell to a low level, while coincident and lagging indicators both fell slightly. Export performance in August was mixed, PMI continued to decline, the impact of financial data "squeezing liquidity" continued, M1 reached a new low, the pulse of social financing fell back, the role of government bonds in the credit structure increased, and there was a significant divergence in household loans. Waiting for countercyclical policies to strengthen, maintaining the judgment that the market is approaching the inflection point 2.0 within the year.
15/09/2024

Ren Zeping: Economic overheating means that it is time to go all out and spur economic growth.

The economy is overheating, and it is time to fully engage in economic efforts. From a macro perspective, it is about data, while from a micro perspective, it is about the joys and sorrows of countless families. People engaged in economic research must have a sense of human care. They should uphold the spirit of scientists and maintain a constructive attitude. In recent years, China has made positive progress in developing new energy, digital economy, artificial intelligence, controlling housing prices, and reducing financial leverage, resolving many longstanding and difficult historical issues with great determination and courage, laying a solid foundation for sustainable high-quality development. However, at the same time, the economy continues to decline, and there are even signs of long-term and substantial overheating, making the situation increasingly severe. Looking at industrial production, the value-added of industries above designated size decreased by 0.6% month-on-month in August, with a year-on-year growth of 4.5%. From the perspective of the three key drivers of the economy, consumption and investment in August were close to zero growth, with rates of 2.1% and 2.0% respectively, showing weak domestic demand. Mainly relying on exports, which grew by 8.7% year-on-year in August, but export prices decreased. There is significant uncertainty in future external demand. On September 13, the United States decided to impose substantial tariffs on Chinese goods, including a 100% tariff on electric cars, 50% on CECEP Solar Energy batteries, 50% on Chinese semiconductors, and 25% on Chinese steel, aluminum, electric vehicle batteries, and key minerals. In terms of prices, the Producer Price Index (PPI) has been negative for over 20 months, while the Consumer Price Index (CPI) remains close to 0, a rare historical occurrence, highlighting deflationary pressures. Looking at financial data, both M1 and social financing have continued to slow down, with companies reluctant to lend, and residents practicing precautionary savings, leading to low economic activity. In terms of fiscal data, amid a year-on-year decrease of 5.4% in national tax revenue from January to July, non-tax revenue increased by 12% to 2.44 trillion yuan. It has become a common phenomenon for local governments to owe salaries, with a large number of small and medium-sized enterprises being owed project funds by local governments, leading to a wave of layoffs and salary cuts. Regarding employment, the urban survey unemployment rate for the 16-24 age group (excluding students) in July was 17.1%, an increase of 3.9 percentage points from the previous month; the consumer confidence index in July was 86.0, the lowest since 2023. The combination of unemployment pressure and weak consumption is creating a negative cycle. Looking at asset prices, both the stock market and the property market have been declining for nearly three years, with most major stock indices (excluding bank stocks) falling by more than half, and the ChiNext Index falling by more than half. From January to August, the year-on-year decline in sales area of new commercial housing was 18%, with average price declines of around 30% in first and second-tier cities, and even halved in suburban areas and third and fourth-tier cities. The substantial reduction in household assets is leading to continued downgrading of consumption. Recently, I deeply feel that the most urgent task is to fully engage in economic efforts, as development is the fundamental solution to all problems. Healthy economic growth and employment are the foundation for addressing US strategic containment, ensuring a good life for the people, and moving towards high-quality development. The current priority is to quickly prevent deflation traps and sustained economic downturns, adopt large-scale economic stimulus measures, protect the vitality of private economy, vigorously expand demand, and respond to the needs of society. In terms of fiscal policy, deficit can be increased within the year, expedite the issuance of special bonds, make good use of ultra-long-term special national bonds, increase support for new infrastructure and new productive forces to generate more physical output, and introduce local special national bonds to repay debts owed to enterprises by local governments, alleviating the pressure on local finances and businesses. For monetary policy, there is still room for comprehensive force, including reserve requirement ratio cuts and interest rate cuts; with expectations of a possible interest rate cut by the US Federal Reserve, the continuous appreciation of the Renminbi since mid-August has weakened the constraints of exchange rates on Chinese monetary policy, allowing for a reduction in mortgage rates for existing properties to alleviate the repayment pressure on residents. It is important to establish a large-scale housing bank, collect and store surplus land inventory from local governments and unsold properties from developers for affordable housing, to meet the housing needs of new graduates and new urban residents. First-tier cities can relax restrictions on suburban areas and large-size properties to promote a soft landing in the real estate market. China has great economic potential, and as long as substantial and effective measures are taken, confidence will be greatly boosted, with confidence being more important than gold. In this way, our economy has great prospects. The economic and financial data for August show the following characteristics: 1) After the implementation of new policies in May, the real estate market experienced a pulse-like rebound in June and July, but since August, there has been a noticeable decline in real estate transactions, indicating limited effectiveness of the new policies. Real estate investment remains weak due to factors such as shrinking land supply and demand. In August, the year-on-year decrease in sales area and sales value of commercial housing was 12.6% and 17.2% respectively, narrowing by 2.8 and 1.3 percentage points from July; the sources of real estate development funds saw a year-on-year decrease of 10.6%, narrowing by 1.3 percentage points from July; real estate development investment fell by 10.2% year-on-year, narrowing by 0.6 percentage points from July; the prices of new residential housing in first, second, and third-tier cities fell by 0.3%, 0.7%, and 0.8% respectively compared to the previous month. The bottom of the real estate market depends on improvements in resident purchasing power and expectations. The expectation of a further reduction in mortgage rates for existing properties in the near future has reemerged; if realized, it would significantly reduce the burden on residents and boost market confidence. 2) Infrastructure investment has declined, but investment in water, electricity, and gas remains high. Infrastructure construction investment in August grew by 6.2% year-on-year, a decrease of 4.5 percentage points from July. In August, investment in water, electricity, and gas increased by 21.9% year-on-year, while investment in transportation and warehousing fell by 2.4% year-on-year, primarily due to a high base, but with a month-on-month increase. The issuance of special bonds has accelerated, with the volume of new special bond issuance in August approaching 800 billion yuan, setting a new high for monthly issuance this year. The proportion of new special bonds issued by some provinces continues to rise, which may be used to repay existing debt or alleviate local debt pressure, with the effects on turning infrastructure investment into physical output yet to be observed. 3) Manufacturing investment continues to grow at a fast pace, benefiting from the development of new productive forces and equipment upgrades, which is expected to continue supporting fixed asset investment. Manufacturing investment in August increased by 8.0% year-on-year, a decrease of 0.4 percentage points from July; among them, transportation equipment manufacturing, such as railways, increased by 34.1% year-on-year. Industrial enterprise profits cumulatively increased by 3.9% year-on-year from January to July, a 0.3 percentage point increase from January to June. Investment in equipment and tools increased by 16.8% year-on-year from January to August, contributing 64.2% to overall investment growth. 4) Consumption has slowed down, with differentiation in the growth of essential and optional consumer goods. Consumption is a function of wealth and expectations. With an increase in the unemployment rate, consumer confidence has decreased, with the urban survey unemployment rate for the 16-24 age group (excluding students) reaching 17.1% in July, an increase of 3.9 percentage points from the previous month. The consumer confidence index was 86.0 in July, the lowest since 2023. The combined pressures of unemployment and weak consumption are creating a negative loop. Overall, it is crucial to actively engage in economic efforts to address the challenges facing the economy and ensure sustainable and high-quality development.The employment situation for the workforce aged 16-24 (excluding students) is grim, with insufficient willingness to consume. In August, the total retail sales of consumer goods grew by 2.1% year-on-year, a decrease of 0.6 percentage points from the previous month; month-on-month, it was -0.01%, weaker than seasonal trends. Essential consumer goods maintained growth, while most optional consumer goods saw negative growth. The urban survey unemployment rate in August was 5.3%, and the urban survey unemployment rate in 31 major cities was 5.4%, both up by 0.1 percentage points from the previous month. In July, the urban survey unemployment rate for the workforce aged 16-24 (excluding students) was 17.1%, an increase of 3.9 percentage points from the previous month; for the age groups 25-29 and 30-59 (excluding students), the urban survey unemployment rates were 6.5% and 3.9% respectively, with changes of 0.1 and -0.1 percentage points from the previous month. The consumer confidence index in July was 86.0, a decrease of 0.2 from June, the lowest value since 2023.5) External demand has cooled off, but exports have picked up, mainly due to factors such as typhoons, grabbing exports, strong competitiveness of Chinese manufacturing, and low base numbers. In August, exports increased by 8.7% year-on-year (in US dollars), up 1.7 percentage points from the previous month; the two-year composite was -0.3%. Structurally, mechanical and electrical products remain the main support for exports; ships and automobiles continue to experience high growth; weak inventory replenishments in the United States and the revival of the real estate market are driving the export of household appliances. Exports to the EU and emerging economies are better than to developed countries. In the future, trade friction between the EU, the US, and China is likely to disrupt China's export pace, leading to possible grabs for exports in the current period and overspending of demand later on. 6) Credit and social financing demand are weak, with M1 growth hitting historic lows for five consecutive months, and the real economy showing a lack of vitality. In August, existing social financing increased by 8.1% year-on-year, down 0.1 percentage point from the previous month; new social financing amounted to 3,029.8 billion yuan, an increase of 98.1 billion yuan year-on-year. Structurally, government bonds are the main support. Net financing of government bonds increased by 1,613 billion yuan year-on-year, up 437.1 billion yuan from the previous month. M2 growth was 6.3% year-on-year, unchanged from the previous month; M1 growth was -7.3% year-on-year, hitting a historic low again, down 0.7 percentage points from the previous month; the M2-M1 gap widened further to 13.6%, reaching it highest value this year. 7) The core CPI and PPI fell in August. The CPI rose slightly, mainly due to hot and rainy weather pushing up vegetable and fruit prices, and a slight increase in pork prices; durable goods prices continued to decline; influenced by the real estate market, rental prices are trending downward. The core CPI fell from 0.3% month-on-month to -0.2%; year-on-year it was 0.3%, down 0.1 percentage points from the previous month. The CPI was 0.6% year-on-year; month-on-month it was 0.4%, down 0.1 percentage points from the previous month. The PPI fell by 1.8% year-on-year, with the decline widening by 1.0 percentage points from the previous month; the month-on-month change was -0.7%, with the decline expanding by 0.5 percentage points from the previous month. Without strong policy support, it would be difficult for the core CPI to see substantial increases this year, and reaching zero for the PPI would still be challenging. Industrial production continues to decline, service industry production falls, high-tech industries grow rapidly Since April, industrial production growth has continued to decline. In August, the year-on-year growth of industrial value added above the designated size was 4.5%, down 0.6 percentage points from the previous month; month-on-month it was 0.3%, weaker than seasonal expectations. In August, the year-on-year growth rate of export delivery value was 6.4%, unchanged from the previous month; the production-sales ratio was 96.6%, down 0.6 percentage points from the previous month. Among the three major categories, electricity, heat, gas, and water production grew faster than mining and manufacturing. The year-on-year growth rates of value added in the mining, manufacturing, and electricity, heat, gas, and water production industries were 3.7%, 4.3%, and 6.8%, respectively, with changes of -0.9, -1.0, and 2.8 percentage points from the previous month. 1) High-tech manufacturing industries grew rapidly. In August, the year-on-year growth of industrial value added in high-tech industries was 8.6%, down 1.4 percentage points from the previous month. Among them, the year-on-year growth rates of the manufacturing of computers, communications, and other electronic equipment, as well as railway, ship, aerospace, and other transportation equipment manufacturing were 11.3% and 12.0%, respectively, down 3.0 and 0.7 percentage points from the previous month. The year-on-year growth rate of automobile manufacturing was 4.5%, up 0.1 percentage points from the previous month. 2) Non-metallic mineral products industry and black metal smelting and rolling processing industry experienced negative growth due to the impact of the real estate sector. In August, the year-on-year growth rates of non-metallic mineral products and black metal smelting and rolling processing industries were -5.5% and -2.1%, respectively, with declines of -2.6 and -0.6 percentage points from the previous month. 3) Production in the food industry declined. In August, the year-on-year growth rates of agricultural and sideline food processing industry and food manufacturing industry were -0.1% and 6.9%, respectively, with declines of -0.3 and -0.2 percentage points from the previous month. 4) The service industry production index was 4.6% year-on-year, down 0.2 percentage points from the previous month. Among them, the information transmission, software, and information technology services industry as well as the rental and business services industry saw slight increases, with year-on-year growth rates of 12.1% and 9.4%, respectively, down by -0.5 and 0.4 percentage points from the previous month. Fixed asset investment stabilizes, high-tech industry growth remains stronger than overall In August, fixed asset investment (excluding rural households) increased by 2.0% year-on-year, up 0.2 percentage points from July. Looking at investment entities, private fixed asset investment and state-owned holding enterprise fixed asset investment for January to August accumulated year-on-year growth rates of -0.2% and 6.0%, respectively, down by -0.2 and 0.3 percentage points from July; private investment excluding real estate development grew by 6.3%. Investment in high-tech manufacturing industries remains faster than overall fixed investment. For January to August, high-tech industry investment increased by 10.2% year-on-year, with high-tech manufacturing and high-tech service industry investments increasing by 9.6% and 11.7% respectively. Amid the new round of technological revolution and industrial transformation, emerging industries continue to grow rapidly, with investments in aerospace, spacecraft, and equipment manufacturing as well as electronic and communication equipment manufacturing growing by 34.4% and 10.0% in January to August. The pulse of the real estate market continues to decline In August, the year-on-year decrease in sales area and sales amount of commercial housing were -12.6% and -17.2% respectively, narrowing by 2.8 and 1.3 percentage points from July. After the policies introduced in May, the real estate market experienced a short-term resurgence in June and July, but since August there has been a significant decline in real estate transactions, with limited effects from the new policies. In August, the month-on-month changes in sales prices of new residential buildings in first-, second-, and third-tier cities were -0.3%, -0.7%, and -0.8% respectively, with Shanghai seeing a 0.6% increase; the month-on-month changes in prices of second-hand residential buildings in first-, second-, and third-tier cities were -0.9%, -1.0%, and -0.9%. Housing demand continues to be limited by residents' expectations regarding future income, employment, and prospects. The growth rate of domestic loans received by real estate companies continues to narrow, mainly due to the high growth rate of domestic loans being constrained by overall sales receipts. In August, the year-on-year change in sources of funds for real estate development was -10.6%, narrowing by 1.3 percentage points from July. In August, real estate companies received domestic loans, self-raised funds, deposits and prepayments, and personal mortgage loans that amounted to 7.4%, -6.2%, -15.7%, and -21.8% year-on-year respectively, with changes of 11.2, 0.1, -2.8, and 12.2 percentage points from July. In January, the China Banking and Insurance Regulatory Commission and the Ministry of Housing and Urban-Rural Development jointly issued a document entitled "On the"Notice on Establishing a Coordinated Mechanism for Real Estate Financing in Cities, mandated in June that commercial banks should lend as much as possible to projects on the "white list" that meet the requirements. By late August, commercial banks had already approved over 5300 projects on the "white list" according to the approval process, with approved loan amounts totaling nearly 1.4 trillion yuan. As funds are gradually disbursed according to project progress, the situation for domestic loan funds for real estate enterprises has improved.Affected by factors such as shrinking land supply and demand, real estate investment is still sluggish. In August, real estate investment decreased by 10.2% year-on-year, narrowing the decline by 0.6 percentage points compared to July. According to data from China Index Academy, in August, the supply area of construction land in 300 cities decreased by 29.0% year-on-year, the transaction area decreased by 31% year-on-year, and the total land transfer fees decreased by 53% year-on-year. Central enterprises and state-owned enterprises are still the main players in land acquisition. The new construction and completion areas in August decreased by 16.7% and 36.6% year-on-year, respectively, narrowing the decline by 3.0 and expanding by 14.8 percentage points compared to July. The real estate development prosperity index in August was 92.35, an increase of 0.15 percentage points from the previous month. Real estate is China's largest pillar industry, and if the real estate market is stable, the economy, employment, and finance will also be stable. The bottom of the real estate market still relies on improving residents' purchasing power and expectations to boost confidence. Since 2024, the spread between existing and new housing loans continues to widen, leading to an increase in residents prepaying or being forced to terminate their loans, prompting calls for a reduction in existing housing loan interest rates. Expectations of a reduction in existing housing loan rates have resurfaced recently, and if existing housing loan rates can be lowered, it will greatly reduce the burden on residents and boost market confidence. Infrastructure investment growth slows down, water, electricity, and gas maintain high growth In August, infrastructure construction investment grew by 6.2% year-on-year, a decrease of 4.5 percentage points from July. In August, infrastructure construction investment (excluding water, electricity, and gas) increased by 1.2% year-on-year, a decrease of 0.8 percentage points from July. 1) Investment in water, electricity, and gas production and supply maintained high growth. In August, investment in water, electricity, and gas increased by 21.9% year-on-year, an increase of 0.8 percentage points from July. The State Grid's investment has accelerated, raising the annual budget for grid construction investment from the initial 560 billion yuan to over 600 billion yuan in July. High profits drive high investment. The cumulative year-on-year profits in the water, electricity, and gas industry from 2022 to July 2024 were 41.8%, 54.7%, and 20.1%, respectively. 2) Investment growth in transportation and warehousing slows down due to a high base, but month-on-month growth is positive. In August, transportation and warehousing investment decreased by 2.4% year-on-year, a decrease of 19.0 percentage points from July. In August, railway transportation and road transportation investments increased by 8.1% and -7.6% year-on-year, respectively, with positive month-on-month growth. 3) The water management industry has performed well, but the decline in public facilities management investment has dragged down the overall water, environment, and public facilities industry. In August, investments in water, environment, and public facilities management increased by 4.6% year-on-year, an increase of 3.9 percentage points from July. Water management industry investment increased by 66.9% year-on-year, while public facilities management investment decreased by 4.7% year-on-year. Special bond funds continued to flow in to drive the strong performance of the water management industry. As of July, the 1 trillion yuan worth of special bonds issued in 2023 had been allocated to 15,000 projects, focusing on post-disaster reconstruction and disaster prevention projects, all of which had commenced construction. By July 24th, this year's 1 trillion yuan worth of long-term special bonds had issued 418 billion yuan, supporting the implementation of major national strategies and key areas of security capacity building. On the funding side, the issuance of special bonds has accelerated, and the participation of "special" new special bonds may help alleviate the pressure of local debt. The issuance of new special bonds at the local level has accelerated, with a total of around 12 trillion yuan issued in August, of which the scale of new special bonds issued is close to 800 billion yuan, setting a new monthly issuance record for the year. The proportion of undisclosed "special" new special bonds used to repay existing debts to ease the pressure of localized debt is increasing, and it is expected that the progress of special bonds issuance will continue to accelerate. On the project side, major project construction in many provinces and cities is accelerating. Many places have explicitly stated the need to increase the maturity of projects to ensure that physical work is completed as soon as funds are allocated, giving priority to supporting projects with high maturity. Investments in projects with planned total investment of over 100 million yuan increased by 7.0% year-on-year from January to August. Manufacturing investment continues to maintain rapid growth, benefitting from the development of new quality production forces and equipment updates In August, manufacturing investment increased by 8.0% year-on-year, a decrease of 0.4 percentage points from July. Under the impetus of policies promoting the transformation and upgrading of the manufacturing industry and large-scale equipment renovation, the support of high-tech investments in manufacturing for fixed investments can still be expected in the future. From January to August, investment in consumer goods manufacturing increased by 14.9%, equipment manufacturing by 10.0%, and raw material manufacturing by 9.0%. 1) Industries related to new quality production forces show strong growth. In August, investments in transportation equipment manufacturing such as railways and computer, communication, and other electronic equipment manufacturing increased by 34.1% and 12.4% year-on-year, respectively, maintaining double-digit growth. The government work report in 2024 mentioned the need to "vigorously promote the construction of a modern industrial system and accelerate the development of new quality production forces." The decision on further comprehensive deepening reform and promoting China's modernization issued by the Central Committee on July 21, 2024, proposed to "improve the institutional mechanisms for the development of new quality production forces tailored to local conditions." Cultivating ShenZhen New Industries Biomedical Engineering is a key task, and the development of strategic emerging industries and future industries is crucial. The relevant manufacturing industries will continue to grow rapidly. 2) Equipment renewal policies continue to be implemented, and various equipment manufacturing industries are expected to maintain high growth rates. In August, investments in general equipment and special equipment manufacturing increased by 13.8% and 9.9% year-on-year, respectively, higher than the overall manufacturing growth rate. In March 2024, the State Council issued the "Action Plan to Promote Large-Scale Equipment Renewal and the Exchange of Consumer Goods for Old Ones." In April, the Ministry of Industry and Information Technology and seven other departments jointly issued the "Implementation Plan to Promote Equipment Renewal in the Industry," proposing that the investment scale in the industrial field increase by more than 25% by 2027 compared to 2023. On July 25th, the National Development and Reform Commission and the Ministry of Finance jointly issued "Several Measures for Strongly Supporting Large-Scale Equipment Renewal and the Exchange of Consumer Goods for Old Ones," coordinating the allocation of around 300 billion yuan of long-term special bonds, with around 150 billion yuan each for equipment renewal and the exchange of consumer goods for old ones. Under the drive of the large-scale equipment renewal policy, equipment and tool purchase investments from January to August increased by 16.8% year-on-year, contributing 64.2% to the overall investment growth. Consumer spending declined, with a differentiation between necessity and discretionary items Consumer spending fell, with a month-on-monthWeaker than seasonal. In August, the total retail sales of consumer goods increased by 2.1% year-on-year, a decrease of 0.6 percentage points from the previous month; a decrease of 0.01% from the previous month, weaker than seasonal.Product retail declined, while service retail repair slowed. In August, the year-on-year growth rates of product retail and catering revenue were 1.9% and 3.3% respectively, with changes of -0.8 and 0.3 percentage points from the previous month. From January to August 2024, the year-on-year growth rate of service retail cumulatively was 6.9%, a decrease of 0.3 percentage points from the previous month. Looking at different industries, there is a differentiation between necessities and optional consumer goods. Necessities maintained growth, while most optional consumer goods had negative growth. Car consumption saw an expanded decline, and post-cycle consumption in real estate continued to be a drag. Consumption of oil and related products shifted from positive to negative. 1) Necessities maintained slight growth, with year-on-year growth rates of grains and oils, food, beverages, tobacco and daily supplies at 10.1%, 2.7%, 3.1%, and 1.3% respectively, with changes of 0.2, -3.4, 3.2, and -0.8 percentage points from the previous month. 2) Most optional consumer goods had negative growth; travel and entertainment declined as summer holidays approached their end. In August, year-on-year consumption of clothing, footwear and textiles, cosmetics, and jewelry decreased by 1.6%, 6.1%, and 12.0% respectively, with changes of 3.6, 0, and -1.6 percentage points from the previous month; sports and recreational goods consumption decreased by 3.2%, a drop of 7.5 percentage points from the previous month. 3) The decline in car consumption expanded, related to weak consumer willingness. In August, car consumption decreased by -7.3% year-on-year, a decline of 2.4 percentage points from the previous month. 4) Negative growth in consumption of oil and related products was mainly due to declining oil prices. In August, the year-on-year consumption of oil and related products was -0.4%, a decrease of 2.0 percentage points from the previous month. 5) Post-cycle consumption in real estate continued to see negative growth. In August, year-on-year growth rates of household appliances, audio and video equipment, furniture, and construction and decoration materials were 3.4%, -3.7%, -6.7% respectively, with changes of 5.8, -2.6, -4.6 percentage points from the previous month. The increase in unemployment, particularly among labor forces aged 16-24 (excluding students), has led to a severe employment situation, with inadequate consumer confidence in the household sector. In August, urban surveyed unemployment rates and urban surveyed unemployment rates in 31 major cities were 5.3% and 5.4% respectively, an increase of 0.1 percentage points from the previous month. In July, the urban surveyed unemployment rate among the labor force aged 16-24 (excluding students) was 17.1%, an increase of 3.9 percentage points from the previous month; for the age groups 25-29 and 30-59 (excluding students), urban surveyed unemployment rates were 6.5% and 3.9%, with changes of 0.1 and -0.1 percentage points from the previous month. The consumer confidence index in July was 86.0, a decrease of 0.2 from June, representing the lowest value since 2023. Exports have rebounded, mainly due to factors such as typhoons impacting exports, "export grabbing", with uncertainties in future external demand. In August, exports increased by 8.7% year-on-year (measured in USD), an increase of 1.7 percentage points from the previous month, mainly due to factors such as typhoons, "export grabbing", strong competitiveness of Chinese manufacturing, American inventory replenishment, and the revitalization of supply chains. The two-year compound growth rate of exports in August was -0.3%, an increase of 3.9 percentage points from the previous month, marking the fourth consecutive month of decline. After the bottoming out of durable goods inventories of wholesalers in the United States in November 2023, a trend of slight replenishment appeared; exports to Vietnam and South Korea increased by 16.1% and 11.4% respectively. However, there has been a slowdown in external demand, with substantial uncertainties remaining in the global economy. While the U.S. economy shows resilience, there is a marginal slowdown, and the replenishment cycle may be weak, exacerbated by escalating geopolitical conflicts and rising protectionism and unilateralism. The global Purchasing Managers' Index (PMI) has contracted for two consecutive months in August, it was 49.5, with new orders at 48.8, both below the threshold of economic expansion. Mechanical and electrical products remain the main support for exports, driving 6.9 percentage points of export growth; shipbuilding and automotive sectors continue to see high growth; a weak replenishment cycle for U.S. inventories and a market revival in real estate have driven exports of household electrical products. Mechanical and electrical products accounted for 60.7% of the export value, with a year-on-year growth of 11.9% and a two-year compound growth of 1.9%. Among them, automatic data processing equipment and its components and integrated circuits saw year-on-year growth rates of 10.8% and 18.2% respectively; ship exports increased by 60.6%; automotive exports, including chassis, rose by 32.7%; household electrical appliance exports by 12.0%, with a two-year compound growth rate of 11.7%. Exports of the top eight labor-intensive products decreased by -2.1% year-on-year, but increased by 2.5% compared to the previous month. Among them, labor-intensive products such as clothing, footwear, bags, toys, and furniture saw year-on-year declines of 2.7%, 5.5%, 10.6%, 8.3%, and 4.5% respectively. High-tech product exports increased by 9.1% year-on-year and fell by -2.7% on a two-year compound basis. Economic differentiation is visible, with emerging economies performing better than developed economies, yet with a declining growth momentum. In August, export amounts to the U.S. and Europe exceeded those to ASEAN, with year-on-year growth rates of 4.9%, 13.4%, 9.0% respectively, changes of -3.2, 5.4, and -3.2 percentage points from the previous month; on a month-on-month basis, the rates were 3.3%, 2.3%, and -0.5%; exports to Russia, Brazil, and India saw year-on-year growth rates of 10.4%, 42.8%, 14.0% respectively, changes of 13.2, 18.3, and 5.4 percentage points from the previous month; on a month-on-month basis, the rates were 2.7%, 22.2%, and 3.7%. Imports have declined, indicating a lack of domestic demand. In August, imports decreased by 0.5% year-on-year, a decrease of 6.7 percentage points from the previous month, with a two-year compound growth rate of 7.2%. Looking at countries, imports from ASEAN, Japan, and South Korea decreased by 5.0%, -1.3%, and 12.2% respectively, while imports from Vietnam increased by 6.6%; imports from the European Union and the U.S. decreased by -5.3% and 12.2% respectively, a decrease of 12.4 and 11.9 percentage points from the previous month. Among major commodities, imports of crude oil, iron ore, copper, steel, and coal decreased by -4.2%, -9.4%, -1.7%, -17.1%, and 7.3% respectively, while import quantities decreased by -7.0%, -4.7%, -12.3%, -20.5%, and 3.4% respectively. High-tech and mechanical products imports increased by 13.0% and 8.6% respectively, with integrated circuits growing by 11.2%; automotive imports decreased by -0.9% year-on-year, a significant drop of 16.4 percentage points from the previous month. M1 growth has hit a historical low for the fifth consecutive month, indicating lackluster economic activity. In August, the stock of social financing grew by 8.1% year-on-year, a decrease of 0.1 percentage points from the previous month. The newly added social financing amounted to 3029.8 billion yuan, an increase of 98.1 billion yuan year-on-year. Structurally, government bonds are the main support for social financing.Support. 1) Decrease in on-balance sheet credit. The newly added RMB loans in social financing totaled 104.41 billion yuan, a decrease of 29.71 billion yuan compared to the same period last year. 2) Decrease in off-balance sheet financing. Off-balance sheet financing increased by 116.1 billion yuan in August, an increase of 15.6 billion yuan compared to the same period last year. 3) Increase in government bonds. Net financing for government bonds increased by 161.3 billion yuan in August, an increase of 43.71 billion yuan compared to the same period last year. 4) Direct financing increased by 182.3 billion yuan, a decrease of 200.1 billion yuan compared to the same period last year.Credit growth slows, with weak financing demand from enterprises and residents. As of August, the year-on-year growth rate of credit balance for financial institutions was 8.5%, a decrease of 0.2 percentage points from the previous month. New RMB loans amounted to 900 billion yuan, a decrease of 460 billion yuan compared to the same period last year. New corporate loans totaled 840 billion yuan, down by 108.8 billion yuan year-on-year; new household loans reached 190 billion yuan, a decrease of 202.2 billion yuan year-on-year. M2 growth remains stable, while M1 growth hits a historical low for the fifth consecutive month, leading to a widening gap between M2 and M1. In August, M2's year-on-year growth rate was 6.3%, unchanged from the previous month; M1's year-on-year growth rate was -7.3%, also hitting a new low and decreasing by 0.7 percentage points from the previous month; the gap between M2 and M1 further expanded to 13.6%, the highest value of the year. Corporate deposits increased by 350 billion yuan, a decrease of 539 billion yuan year-on-year; household deposits increased by 710 billion yuan, down by 77 billion yuan year-on-year. Localized abnormal weather conditions drove up the CPI, while declining commodity prices led to a decrease in the PPI. In August, prices continued to decline, reflecting insufficient domestic demand. The core CPI decreased from 0.3% to -0.2% month-on-month; although the CPI slightly increased, it was mainly due to food price increases caused by abnormal weather conditions; the decline in PPI further widened. Since 2023, overall prices have been low, with CPI hovering around 0 year-on-year and PPI experiencing negative growth for 23 months. Specifically, food prices increased significantly, driven by high temperatures and localized heavy rainfall, pushing up prices of vegetables and fruits, with a slight increase in pork prices. In August, food prices rose by 3.4% month-on-month, an increase of 2.2 percentage points from the previous month; food prices went up from 0% to 2.8% year-on-year. Fresh vegetables, pork, aquatic products, eggs, and fresh fruits in August rose by 18.1%, 7.3%, 0.2%, 2.8%, and 3.8% month-on-month, respectively, with changes of 8.8, 5.3, -0.2, -0.9, and 4.1 percentage points from the previous month. Non-food prices turned negative month-on-month due to declining international crude oil prices and reduced travel demand; durable goods prices continued to fall; influenced by the real estate sector, rental prices trended downward. In August, non-food prices decreased from 0.4% to -0.3%. Prices of household appliances, transportation equipment, and communication equipment fell by -0.7%, -0.3%, and -0.8% month-on-month, with changes of -1.1, 0.3, and -0.7 percentage points from the previous month; fuel prices for transportation equipment dropped by 2.9%. Rental prices decreased by -0.3% year-on-year. Pork prices saw an increasing month-on-month change, entering an upward phase of the "pork cycle," with limited space for this round of increase. In August, pork prices rose by 16.1% year-on-year, a decrease of 4.3 percentage points from the previous month; month-on-month, pork prices increased by 7.3%, up by 5.3 percentage points from the previous month. As of September 6, 2024, the average wholesale price of pork was 27.36 yuan/kg. After reaching a near-balance point in production capacity, the market showed a fluctuating trend, with a slowdown in liquidation speed, an increase in the feed-to-pork ratio; industry concentration has increased, and the price fluctuations in this new round of the pork cycle may be smaller than in the traditional pork cycle. The decline in PPI year-on-year widened, driven by insufficient industrial demand and falling commodity prices; prices across industrial chains such as crude oil, steel, coal, and non-ferrous metals generally decreased, while prices in the consumer goods manufacturing industry declined, with a differentiated rise and fall in high-tech industries. In August, PPI fell by 1.8% year-on-year, an increase of 1.0 percentage points from the previous month; month-on-month, PPI was -0.7%, an increase of 0.5 percentage points from the previous month. Prices of aircraft manufacturing increased by 2.1%, prices of industrial Siasun Robot & Automation manufacturing increased by 0.8%, and prices of computer manufacture increased by 0.4%; computer, communications, and other electronic equipment manufacturing and automobile manufacturing decreased by 0.2% month-on-month. PMI has remained below the boom-bust line for four consecutive months. In August, the manufacturing PMI continued to decline, weaker than seasonal trends, with insufficient domestic demand being the main issue. Production fell below the boom-bust line, while new orders and new export orders continued to shrink; real estate sales remained weak, and a significant decline in factory prices suppressed business profits, leading to difficulties for small and medium-sized enterprises. Production and demand both fell into the contraction zone. The production index and the new order index were 49.8% and 48.9% respectively, down by 0.3 and 0.4 percentage points from the previous month. Exports continued to show resilience, with new export orders at 48.7%, up by 0.2 percentage points from the previous month. The main raw material purchase price index and the factory price index were 43.2% and 42.0%, respectively, a significant decrease of 6.7 and 4.3 percentage points from the previous month. The gap between the factory price index and the raw material price index narrowed slightly, easing cost pressures, but insufficient demand continued to drag down factory prices, keeping downstream industries under profit pressure. Large enterprises maintained an expansion trend, while small and medium-sized enterprises remained below the boom-bust line, highlighting issues such as insufficient demand and the need to stabilize the recovery of small and medium-sized enterprises. The PMI for large, medium, and small enterprises was 50.4%, 48.7%, and 46.4% respectively, with declines of 0.1, 0.7, and 0.3 percentage points from the previous month. Construction activity slowed down, while the service industry remained relatively strong. The business activity index for the construction industry was 50.6%, down by 0.6 percentage points from the previous month, mainly due to a slow pace of special bond issuance and construction progress being affected by high temperatures and heavy rainfall. The business activity index for the service industry was 50.2%, up by 0.2 percentage points from the previous month, but weaker than seasonal trends, with a slowing pace of consumption recovery. This article was originally published by "Zepin Macro" and written by Ren Zeping; Translation by GMTEight, Edited by Liu Jiayin.
15/09/2024
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