汇丰中国宏观经济研究：中国推出产能削减计划提振需求

Supply side reform 2.0? China to cut capacity and boost demand ◆China has launched a campaign to cut capacity and Jing LiuChief Economist, Greater ChinaThe Hongkong and Shanghai Banking Corporation Limitedjing.econ.liu@hsbc.com.hk ◆Unlikesupply-sidereform1.0in 2016,theemphasisis onfaircompetition andallowing the market to choose winners Taylor WangEconomist, ChinaThe Hongkong and Shanghai Banking Corporation Limitedtaylor.t.l.wang@hsbc.com.hk ◆The pace of policyimplementationis set toaccelerate,supported bydemand-boosting measures, led by urbanisation Erin XinEconomist, Greater ChinaThe Hongkong and Shanghai Banking Corporation Limitederin.y.xin@hsbc.com.hk+852 2996 6975 It’s finally here.On 1 July, after 33 consecutive months of producer price index(PPI) deflation, price wars in multiple sectors, and rising concern from tradingpartners, China launched a campaign to cut overcapacity and address theproblem Heidi LiAssociateGuangzhou Déjà vu?In many ways, this campaignresemblesthesupply-side reform 1.0ofadecade ago. Back then,policymakers addressed the issue of capacity reductionbyusing“one-size-fits-all”top-downadministrative measures.Thesteel and coal sectorswere given strictreductionquotasby the central governmentand the targetswere This time is different.We think the big difference this time will be that marketforceswill play a much bigger role,with the emphasis on fair competition and allowing themarket to choose winners.So far,efforts to reducecapacityhave been on avoluntary basis, led byindustry associations.Not surprisingly, progress has beenlimited.We think thekey to success istobuildan institutionalframeworkwhich Measuresto boost demandlikely to be anchored by urbanisation.One piece ofthe puzzle is still missing–measures to boost demand.Ataminimum,we thinkfundswill beset aside to compensate workersmade redundant as companies fold andindustries consolidate.But we believe there is moreto come. Thehigh-profileCentral Hesitant bulls of summer Issuer of report:The Hongkong and ShanghaiBanking Corporation Limited Disclosures & DisclaimerThis report must be read with the disclosures and the analystcertifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Research at:https://www.research.hsbc.com Capacity reduction ◆Chinatocut overcapacity after33consecutive months of PPI ◆Market-based approach:green transition to be the anchor for carbonheavy sectors; new laws and regulations to govern fair competition ◆Supply side reforms to be accompanied bymeasuresto boostdemand:urbanisation likely to play a big role in stimulating demand “Involution” (内卷) isthe newbuzzwordinChinaas policymakers launcha campaignto reduceovercapacity and prevent irrational price competition.Involution refers to enterprises engagingin increasingly intense, self-defeating competition for limited resources or opportunities, leadingto diminishing returns and collective stagnation. In economic terms,“involutionary competition” We first wrote abouthowChina couldcut capacity to combat deflation pressureson 8 October 2024.Our call was based on observations that price warssqueeze profit margins,worsentheoperating environment(Table1), andmakecompanies focus moreoncost cutting rather than valuecreation.Meanwhile,thesedomestic pressureswerealso spillingacross bordersto trigger trade tensions as other economiesraisedconcernsabouttheimpact of cheap imports on their domestic industries.For example, HSBC Chief Asia Economist Frederic Neumann wrote that moreeconomies in Asia and elsewhere hadimposed import restrictions on mainland China (Asia The campaign to cut capacity finallykickedoffon 1 July.The Central Commission for Financialand Economic Affairs (CCFEA) and the Ministry of Industry and Information Technology both China warned that disorderly price competition hadcaused “enormous waste of social There are still many questionsabouthow this will be done and how effective suchacampaignwill be in reviving a healthy competition environment. Our reportaddressesthese questions. Is thissupply-side reform 2.0? SomehavedubbedBeijing’s recent movesas “supply-side reform 2.0”, including ourselves(seeChina Macro Tracker,9 July). However,wehave yet to see theslew of policiesthat wereemployedundersupply side reform1.0back in 2016. In additionto capacity reduction,themeasuresalso includedefforts to reduce housing inventory, corporate deleveraging,and Déjà vu? The last timepolicymakers addressed the issue ofcapacity reduction,theyused a “fast andfurious”approach.In February 2016, China’s State Council set targets to cut capacity by500mtonsand 100-150m tonsfor the coal and steel sectorsrespectively–equivalent to 20% and8-12% of end-2015 capacity–duringthecourse of the13th Five-Year Plan (2016-2020).The Though mostattention appeared tofocus on these two sectors,the scope wasmuch broader,covering cement, flat glass, electrolyticaluminium, ships, and combustion engine cars. Theconsolid