中国信贷观察：K型经济的三个发现

China (PRC) | China Financials China Credit Observation: three findings of K-shaped economy China's May TSF data unveiled a deepened K-shape economy. Liquidityimproved on the surface, yet largely reflect precautionary cash positioning.New loans relied on bill financing, whereas HH credit demand remainedsubdued. We highlight three findings from recent macro data, and favorthree opportunities in China financials: a barbell positioning in China banks,BOC (H) and BONB (A), and HKEx as long-term beneficiary of expandingformal capital connect schemes. Headline TSF buoyed by govt credit: May-26 new TSF printed at Rmb2,029bn, 19% aboveconsensus, driven by Rmb1.2tn issuance in government bonds, which contributes to 60%of new monthly TSF. Total TSF balance printed at Rmb458,810bn, +7.7% YoY. Corporatebond financing improved 14.6% YoY, partially offsetting the weakness on corporate LT loans.Shadow banking components further contracted. M1 improved to 5.5%, but likely low quality: M1 and M2 growth printed at 5.5% (0.5ppt aboveconsensus) and 8.6% in May respectively. We read this set of data into two perspectives 1) anarrowing M2-M1 gap indicates further term deposit activation, which can potentially lead tofurther consumptions/investments; 2) yet M1 strength is likely driven by precautionary liquidityrather than genuine corporate cash deployment, given a weaker PMI new order print (-0.7pptMoM to 49.9), thus is low quality in our view. Real economy credit demand is yet to recover: New Rmb loans printed at Rmb520bn inMay, leading to a 5.5% system level loan balance growth to Rmb281.02tn. Structure was notimproving, as 107% of new Rmb loans was boosted by discounted bills, while household ST/LT loans stayed in contraction zones. Overall China's credit impulse weakened on MoM basis. Three findings about K-shaped economy: First, we track the gap between RatingDog PMI andofficial NBS PMI, and a widening spread in May suggests service-led, export-driven businessactivities are picking up faster driven by AI super-cycle, whereas overall manufacturing/infraactivities landed on a softer patch. Second, export and domestic consumption like come ina divergent pair. China's custom export +19.4% YoY in May-26, beat consensus estimate of15% YoY, marking the strongest since Feb-26, supported by continued strong demand forrenewable and AI-related goods. On the other hand, Core CPI dipped 0.1% MoM to 1.1%, withsoftness in both services and core goods. Third, PPI continued to edge up at +3.9% YoY (vs+2.8% in Apr-26/3.8% consensus), the inflationary pressure from Middle East shock eased abit evidenced from sequentially lower PMI raw material price, but the constant gap betweenpurchase and ex-factory price suggests the limited pass-through, as such downstream sectorsare still early to a reflationary scenario. Three ideas in China Financials: Amid a K-shaped recovery in real economy, soft domesticdemand, and a continued household deleveraging trend, we recommend barbell strategy inChina banks - BOC (H) and Bank of Ningbo (A) are our top picks. We believe recent StateCouncil's outbound investment regulations focus more on real investments, and CSRC'sagenda is to clean up cross-border stock trading happening onshore with the end goal offacilitating capital flows into official channels, such as QDII, Southbound Connect, and WealthManagement Connect. As such, HKEx will be a long-term beneficiary of expanding formalcapital connect channels. .Source: RatingDog, S&P, NBS, Jefferies Betty Li * | Equity Analyst +852 3767 1279 | betty.li@jefferies.com Hongyu Tian * | Equity Associate+852 6806 1456 | hongyu.tian@jefferies.com We would like to thank Tao Xue, employee of Evalueserve Inc., for providing research support services to our preparation of this report. Company Valuation/Risks Bank of China Limited Our PT of HKD 6.3 is based on DDM with 7.69% cost of equity. This implies a 0.67x H-share 2026E P/B and 4.0% dividend yields. Long term ROE isset at 6.4%, implying a long-term H-share P/B of 0.59x. A/H premium is set at 26.4%, A-share TP is set at Rmb 7.4, implied a 0.84x A-share 2026EP/B.Our base case assumes an EPS of Rmb 0.76 based on 1.23% NIM and 0.50% CoR. Upside risks: easing global tension; better-than-expected offshore interest rate movement; and better-than-expected HK market growth; potentialupside in cross-border opportunities. Downside risks: worsening geopolitical conditions that hurt China's exports and economy, or promptsanctions on financial institutions; further weak credit demand; and significant deterioration in asset quality. Bank of Ningbo Co Ltd Our PT of Rmb 42.0 is based on DDM with 8.6 % cost of equity. This implies a 1.12X 2026E P/B.Our base case assumes an EPS of Rmb 4.72based on 1.69% NIM and 1.00% CoR. Upside risk: Better than expected earnings recovery; regional economy further outpaces the country; better-than-expected wealth managementbusiness development; better-than-expect retail recovery. Downside