Morgan Stanley-China Financials Correction Tracking Industrial Risks New...-109496357
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China Financials | Asia Pacific
Correction: Tracking Industrial
Risks: New Rules Announced to
Control Irrational Capacity
Expansion
Richard Xu, CFA
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Beryl Yang
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Chiyao Huang
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Asia Pacific
China's 3D Journey – Financials: Assessing the
cost of supporting ongoing industrial upgrades
(21 May 2024)
China Financials: Tracking industrial risk: More
signs of earlier than expected capacity
rationalization (2 Jul 2024)
China Financials: Third Plenum decisions to
reduce financial risk further (22 Jul 2024)
Limit of preferential policies to attract business and investments
should reduce fierce competition among local governments.
This, along with reduced window guidance to support loan
growth, particularly industrial loan growth, should help drive
more rational capacity expansion in coming quarters.
Fierce competition among local government to attract industrial capacity
investment has been a key driver behind rapid growth in industrial capacity
investments. On June 13, State Council published Rules for Fair Competition Review
to be effective on August 1. The Rules prohibit local governments from granting
preferential treatment to enterprises, such as tax breaks, selective incentives or
subsidies without proper legal support or the approval from the State Council. We
note that this is one of the key methods for local government to attract industrial
investments and is also a key driver for quick national industrial capacity expansion.
!
"
##Our channel checks with local policy
makers show that the new rules will be quite effective in reducing over-competition
among local governments for industrial investment, particularly given the clear
framework of examination and enforcement of the rules. The Third Plenum
delivered a similar message – to regulate policies on tax breaks and strictly prohibit
illegal policy incentives. We believe the new rules will push local governments to
compete on the ability to create a good business environments to attract
investments and new business formations and reduce low-quality subsidies that
tend to create duplicate capacity.
$ %
&#
#&We believe the previous window guidance, which
aimed to maintain high loan growth, particularly for industrial loan growth in the
past few years, has provided ample fuel to feed industrial investment expansion
incentivized by various local governments. We have now seen the effective removal
of both key drivers, which could also improve resources and credit allocation toward
industries with high growth or upgrade potential and reduce local government
financial pressure as a whole. We believe the impact of these changes could kick in
Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a result,
investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of Morgan Stanley
Research. Investors should consider Morgan Stanley
Research as only a single factor in making their investment
decision.
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
+= Analysts employed by non-U.S. affiliates are not registered
with FINRA, may not be associated persons of the member
and may not be subject to FINRA restrictions on
communications with a subject company, public appearances
and trading securities held by a research analyst account.
July 31, 2024 05:09 AM GMT
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gradually over the next few quarters, which is earlier than expected and more
market oriented than the supply-side reforms in 2016.
We have made corrections to the second sentence in the last paragraph on page
one. This article was originally published on July 29, 2024 at 02:42 PM GMT, and
is being republished on July 31, 2024. To receive an electronic copy of the original
version of this publication, please send an e-mail to
Equity_Research_Publishing@morganstanley.com with the publication title and
date.
M
Industry credit risk indicator showed mix change vs. May,
which had more modest deterioration than our original
expectations
We track industrial risks following our detailed report in which we assess costs to support
industrial upgrades and expect supply-side reform with rationalization of industrial credit
growth in 2025.
For the industry as a whole, we saw mixed signals in June. Positively, gross margin has
remained stable in recent months and net profit continued to grow in June and since the
beginning of 2024 despite some slowdown, which also results in part from a low base in
2023. On the other hand, the gap between FAI and nominal IP growth widened in June
2024, indicating continued capacity buildup. PPI also turned negative again MoM in June,
which could weigh on manufacturing firm margins and profit growth continuously.
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9.5
5.6
-40
-30
-20
-10
0
10
20
30
40
50
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
Feb-21
Aug-21
Feb-22
Aug-22
Feb-23
Aug-23
Feb-24
Manufacturing capex vs. output
FAI YTD yoy Nominal - IP yoy
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-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
-10.0
-5.0
0.0
5.0
10.0
15.0
06/2007
07/2008
08/2009
09/2010
10/2011
11/2012
12/2013
01/2015
02/2016
03/2017
04/2018
05/2019
06/2020
07/2021
08/2022
09/2023
PPI
YoY
MoM (RHS)
nearly 4 years of
negative PPI
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摘要：
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格式：PDF
时间：2024-08-15
