Haitong: Economic short-term fluctuations expect policy boost to terminal demand.

Haitong released a research report stating that in August, there were slight fluctuations in production, consumption, and investment in the economy, mainly due to factors such as frequent extreme weather and weak domestic demand. Currently, the standout sectors in the economy are primarily focused on two main themes. First, the central government has increased support for the "two major" and "two new" initiatives, with policy effects continuing to be released, leading to strong performance in sectors such as durable goods consumption like household appliances and manufacturing industry investment. Second, overseas demand remains resilient, with export-oriented industries such as transportation equipment and electronic devices maintaining high production growth rates. In the next stage, the bank predicts that growth-stabilizing policies will continue to be implemented, but whether the economy can enter a sustained improvement phase ultimately depends on the improvement of confidence and expectations of residents and enterprises, as well as the resurgence of domestic demand. Key points from Haitong: August Economy: Short-term fluctuations, awaiting policies The economy is experiencing short-term fluctuations, and policy support is expected to boost domestic demand. In August, there were slight fluctuations in production, consumption, and investment in the economy, primarily influenced by factors such as frequent extreme weather and weak domestic demand. The standout sectors in the economy are currently focused on two key themes. The first is the increased support from the central government for the "two major" and "two new" initiatives, with policy effects continuing to be released, leading to strong performance in sectors such as durable goods consumption like household appliances and manufacturing industry investment. The second theme is the resilience of overseas demand, with export-oriented industries such as transportation equipment and electronic devices maintaining high production growth rates. In the next stage, it is expected that growth-stabilizing policies will continue to be implemented, but it remains to be seen whether the economy can enter a sustained improvement channel, which requires improvements in the confidence and expectations of residents and enterprises, as well as a resurgence of domestic demand. Production: Marginal weakening Production continues to weaken marginally. From January to August, industrial added value increased by 5.8% compared to the same period last year, with a 4.5% year-on-year increase in August, both showing slight declines from the previous month, marking the fourth consecutive month of decline. Looking at the seasonally adjusted month-on-month data, industrial added value increased by 0.32% in August, lower than the previous month and below the average level from 2015 to 2019. The year-on-year decline in the production and sales rate of industrial enterprises in August once again expanded, while the year-on-year growth rate of export delivery value remained the same as the previous month, indicating that external demand continues to provide some support, but there is pressure on domestic demand. Currently, production is relatively weak, partly due to disruptions caused by extreme weather such as high temperatures and heavy rains and partly due to relatively insufficient domestic demand. In addition, in August this year, there was one fewer working day compared to last year, which also had a certain impact on overall production. Production in export-oriented industries is marginally weakening but remains at high levels, with the electricity industry performing well in domestic demand. Among all industries, export-led sectors such as transportation equipment and electronic devices continue to maintain the highest growth rates, although they are showing marginal declines from previous periods. The category with the largest increase in production growth is electric heating equipment and alcoholic beverage and tea industry, with the former benefiting significantly from the high temperatures this summer, resulting in a substantial increase in residential electricity demand, while the latter benefited from seasonal demand improvement during the summer. Upstream industries related to domestic production, such as non-ferrous metals, steel, and building materials, show lackluster performance, with production declining marginally year-on-year, with the steel and building materials industry ranking last among all industries. This is mainly due to the fading effects of previous real estate optimization policies, with the fundamental situation in real estate returning to a low position and the continued weakness of industry demand due to disruptions caused by extreme weather in construction projects. Service production is marginally declining. In August 2024, the service industry production index increased by 4.6% year-on-year, slightly lower than the 4.8% growth in July. The impact of extreme weather on the service industry remains significant. Information software services and transportation and warehousing production are marginally declining, while leasing, business services, and financial industry production show marginal improvement. The year-on-year growth rate of the service industry business activity expectation index is also declining, with the end of the summer season leading to a shift in service consumption to the off-peak season, putting continued pressure on service production. Unemployment rates continue to seasonally increase. In August, the urban survey unemployment rate and the survey unemployment rate of 31 major cities were 5.3% and 5.4% respectively, both rising by 0.1 percentage points from the previous month, with increased pressure on graduate employment causing a seasonal increase in the short-term unemployment rate. With ongoing efforts in employment policies and the end of the job hunting period for graduates, improvements in employment conditions can be expected. Consumption: Yet to be boosted Consumption shows no signs of improvement. The year-on-year growth rate of total retail sales of social consumer goods in August was 2.1%, slightly lower than the 2.7% in July. Looking at the seasonally adjusted month-on-month data, the year-on-year growth rate of total retail sales in August was -0.01%, turning negative from positive, marking the first time since 2022 that a negative growth rate was recorded in August. According to the data from the National Bureau of Statistics, the year-on-year growth rate of service retail sales from January to August was 6.9%, showing a continuous decline. Consumer spending was overall weak in August this year, partly due to restrictions on residents' outdoor consumption caused by extreme weather and partly due to unstable expectations of household income and wealth, leading to a low willingness to consume. When looking at specific categories, goods consumption weakened while dining consumption improved. The year-on-year growth rates of commodity retail and catering revenue in August were 1.9% and 3.3% respectively, with commodity consumption declining marginally while catering consumption showed a slight improvement. This may be due to increased demand for gatherings and banquets during the summer. The year-on-year growth rate of online sales revenue fell from 11.5% in the previous month to 2.3% in August, while offline consumption saw a slight uptick in growth rates. Among specific industries, categories benefiting from the government's policy of upgrading old durable goods showed better performance. This year, the government has vigorously promoted the replacement of old consumer goods with new ones, mainly focusing on big-ticket durable goods such as automobiles and household appliances, leading to strong consumption in these categories. The year-on-year growth rate of household electronic consumption improved from -2.4% in the previous month to 3.4%, showing the largest improvement among all categories. Additionally, the growth rate of communication equipment consumption continued to remain high. Due to weather conditions such as heavy rains affecting the summer, prices of vegetables and fruits increased noticeably, which contributed to the high growth rates in grain and oil food consumption. Among all types of consumption, consumption related to the real estate chain, such as furniture and building materials, has remained low, mainly due to the current return of the real estate sector to a low position after the weakening of policy effects, resulting in weaker downstream consumer demand in the real estate industry. Automotive consumption showed lackluster performance due to weather and holiday influences, with government subsidies for automobiles still needing to show their effects. Investment: Real estate up, infrastructure down Investment is marginally weakening. The year-on-year growth rate of fixed asset investment from January to August was 3.4%, slightly lower than the growth rate from January to July, with the monthly growth rate in August also showing a decrease.The growth rate is 2.0%, slightly higher than July's 1.9%, but still at a lower level. Looking at the seasonally adjusted month-on-month growth rate for August, it is 0.16%, although it has returned to positive, it is still significantly lower than in previous years.In each major subsection, real estate investment drag weakened, while other subsections still marginally declined. In August, real estate, manufacturing, general infrastructure, and specific infrastructure investment year-on-year growth rates were -10.2%, 8.0%, 6.2%, and 1.2%, respectively. Except for real estate investment, which narrowed by 0.6 percentage points, other investment subsections continued to fall, with general infrastructure investment falling by 4.5 percentage points, the largest decline. Private investment year-on-year growth rate fell from -0.6% to -1.6%, the lowest since April 2020, indicating a continued weak private investment sentiment. Manufacturing investment slightly declined but remains a major support for overall investment. Exports and corporate profits both provide some support for manufacturing investment, with strong current exports and improving profit margins due to lower raw material prices. Additionally, policies promoting large-scale equipment updates in enterprises have shown initial effects, keeping manufacturing investment at high levels. However, subdued end-demand still restricts investment intentions for expanding production. The slight fluctuations in manufacturing investment have been observed as small and medium-sized enterprise confidence indices and development indices have slightly declined, indicating a slight fluctuation in manufacturing investment. Without a clear improvement in demand, manufacturing investment may face some downward pressure as external demand changes and policy effects weaken. Infrastructure investment is weak due to slow fund disbursement and weather restrictions on starting construction projects. In August, electricity and heat investment, which performed strongly in the early stages of infrastructure investment, remained at high levels with a year-on-year growth rate of 21.9%. However, other infrastructure investments continue to be dragged down. The slow issuance of special bonds in the first half of the year, combined with high temperatures and heavy rains limiting construction progress, have led to a continuous slowdown in infrastructure investment. However, with the accelerated issuance of special bonds since August, the rise in new order sub-indices in the construction industry PMI may lead to marginal improvements in infrastructure investment. Fundamentally, the real estate market is still in the process of adjustment on both supply and demand sides. In August, the year-on-year growth rates of commercial housing sales area and sales volume were -12.6% and -17.2%, respectively, both showing a smaller decline compared to the previous month. The improvement in sales volume is less than that of sales area, possibly due to a phenomenon of "trading price for quantity" in new home transactions, with real estate companies adjusting prices to stimulate demand after the relaxation of price restrictions. On the production side, there is differentiation, with the year-on-year growth rates of new construction starts, construction area, and completion area in August being -16.7%, 1.2%, and -36.6% respectively. The new construction starts and construction area are showing marginal improvement, with the construction area growing year-on-year, possibly due to well-qualified real estate companies that are still initiating construction projects, along with ongoing efforts in financial coordination mechanisms. However, the completion area is marginally declining, possibly due to insufficient land acquisitions by real estate companies in the previous period, leading to a decrease in completion figures. Risk warning: Unexpected downturn in external demand, and policy effects on stable growth falling short of expectations.