美银-中国“反内卷” ，一场需要 3-5 年的结构性改革20250728

Anti-involution:a structural reform, not aneasy short-termfix Equity Strategy Likely a 3-5yearmission,manage your expectationsAnti-involution emerged as a policypriorityin Jul-2024, with the initial focus on industry 24 July 2025 self-disciplinein afew sectors.It has come under the spotlight in the past few months,with President Xipledgingto curb“low-price competition”.We applaudthe initiative asour 2025 Strategy YAH(see report)also stressedthat structural reformsareessential totackle China’s overcapacity issue. Given the prolonged deflationary pressure and tradetensions, we believe anti-involution could be astrategic focus inChina’s“15th Five-YearPlan”. However,webelieveitismore challenging thanthe supply-side reform in 2015-16, andthe boosttoChina’s PPI andcorporateearningsmaybelimited in the near term. Equity StrategyChina Winnie Wu>>Research AnalystMerrill Lynch (Hong Kong)+852 3508 3058winnie.wu@bofa.com Willie Chan>>StrategistMerrill Lynch (Hong Kong)willie.chan@bofa.com How is this time different from 2015-16 1)Different sector focus:the2015-16reformswiftlyreduced outdated capacity inthe“old economy”(metals& mining)sectors.This time,overcapacity isalso seeninmany“new economy”(advanced manufacturing, green) sectorswithfairlynew capacity,moreprivate companies, more exports,andmorelocalgovernment supports–capacitycutmayface more pushback.2)differentmacrocycle:demand recovery was strong in2016-17,thanks toChina’slocal government debt swapand property stimulus,andtheglobalsynchronizedeconomicrecovery in 2017. China’s exports and property demandare much weaker now, andglobal economyisfacingheadwinds.3)differentpolicymeasures:other thansupply reduction, anti-involution also includes:a) containingpricewars(eg auto, eCommerce);b)protectingSMEs on thesupply chains: shorteningpayment cycle&loweringinventory burden (auto),reducingfees/chargeson merchants(eCommerce);c)reininginlocalgovernmentsubsidiesand buildinga unified nationalmarket; and d)promotingdiversification (eg going abroad)and focusingon quality. Matty Zhao>>Research AnalystMerrill Lynch (Hong Kong)matty.zhao@bofa.com Ming Hsun Lee, CFA>>Research AnalystMerrill Lynch (Hong Kong)minghsun.lee@bofa.com Gary Tsang>>Research AnalystMerrill Lynch (Hong Kong)gary.tsang@bofa.com Joyce Ju>>Research AnalystMerrill Lynch (Hong Kong)joyce.ju@bofa.com Nathan Gee, CFA>>Research AnalystMerrill Lynch (Singapore)nathan.gee@bofa.com Mixed sector impact, potential short-term painsWhile market is excited about the news andtradingup the stocks inrelatedsectors, we highlightthatsupplyrationalizationmaylead tolessinvestmentandloss of jobs/income,which isbad forthenear-termGDP. We expectmixed impact on sectors/stocks: Gina Wu>>StrategistMerrill Lynch (Hong Kong)gina.wu@bofa.com •Supply cut should benefit leading firms in thecement(capacity cut from 2.1bnt to1.6bnt, likely in 2026-27)/steel(5% production cut in FY25)/solar glass(8-15%production cut)/polysilicon(potential M&A)sectors.Protectingsupply chain partnersandcontrollingpricesmaynegativelyaffect•the•salesormarginsoflarge firmsintheautoandeCommercesectors.Lower government subsidies/incentiveswill be negativein general,and moresofortheauto/solar/pharma/transport/materialssectors.Limited policy impactor slow progress:solarmodule/lithium (more POEs, market-driven),coal (energy security,higherutilizationvs‘16),chips/tech(localization),battery (high concentration),homeappliances (good margins,more POEs)•, etc. See Team Page for List of Analysts SeeGlossaryon page25 SME:Small-and-medium-sizedenterprise POE: Privately-owned enterpriseM&A: Merger & acquisition Contents Anti-involution becomes a strategic focusThis time is different from 2015-16Sector focus: more“new-economy”sectorsDemand side: a tougher macro cycle34467891116192425Policy measures: some are negativefor industry leadersAutoEV BatteryEnergy & MaterialsSolareCommerceAirlinesGlossaryResearch Analysts40 Anti-involutionbecomesastrategicfocus Chinahashadmultiplerounds of overcapacity cyclesinthe past few decades,whichareusuallyaccompaniedwith deflationdomestically and trade tensionsexternally.Webelieve anti-involution could be astrategic focus inChina’snext“five-year plan”. China’sPPIhas been negative for the past 2.5years, and CPI fluctuated around 0%.Asour credit/GDP growthmultiplier,which has been agoodleading indicator for PPI,stayedaround2.0xinthe pastfewquarters, we expect PPItoremainat the low levelsin2H25-1H26.The deflationary environmentdepressescorporate margins, andnegativePPI has been correlated withweakindustrial profit growth. PPI deflation is generally negative for industrial profits ’Exporting is a natural strategy to increase capacity utilization.As of 2024,Chinascurrent account surplus at 2%ofGDP and goods surplus at 4%ofGDP were not high byhistorical standards.However, net exports of manufactured goods roseto10% of GDP in2022-24, and these manufactured goods aremore competitive,andless complementary,to theoutputs ofdevelo