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China to step up financing for weak links in infrastructure

2018-08-21

Aug 13– Aug 17, 2018

China will increase funding to support weak links in the country's infrastructure, the banking and insurance regulator said Saturday. The country will step up credit support for infrastructure projects with sound capital base and good operation, on the condition that the funding won't add up to the hidden debt burden of local governments, the China Banking and Insurance Regulatory Commission said in an online statement. Insurance funds should support key projects via various financing channels including debts, stocks, or the combination of both forms, the statement said. Based on analysis of ongoing infrastructure projects, banks and insurers should meet reasonable financing demand in accordance with principles for market orientation and give necessary support to unfinished projects. The regulator also asked banks and insurers to step up financing for various sectors in the real economy, with favorable policies to be given to export-oriented companies and the private sector, according to the statement.

China makes strides in cutting overcapacity

China has made headway in cutting coal and steel overcapacity, resulting in improvements in efficiency and supply-demand mismatch, the country's top economic planner said Thursday. During the first seven months of 2018, the country cut its coal capacity by 80 million tons and crude steel capacity by 24.7 million tons, accomplishing over 50 percent and 80 percent of its annual goals, respectively, Zhao Chenxin, spokesperson for the National Development and Reform Commission, told a news conference. The country aims to cut coal capacity by 150 million tons and crude steel capacity by 30 million tons this year. Capacity-cutting efforts have led to improved profitability in the steel, coal, and power generation sectors, whose profit margins surged 93.4 percent, 18.4 percent, and 28.1 percent year-on-year respectively in the first half of the year, Zhao said. The government will continue to cut outdated and substandard production capacity but move to balance efforts between reducing overcapacity, ensuring supply, and stabilizing prices, he said.

China's consumption to maintain stable growth: commerce ministry

China's consumption market will continue to expand and upgrade as the economy stabilizes, the Ministry of Commerce (MOC) said Wednesday. China's retail sales of consumer goods grew 8.8 percent year-on-year in July, narrowing from the 9-percent rise seen in June, data from the National Bureau of Statistics showed. The data pointed to stable growth momentum, with online sales of physical goods registering rapid growth, the MOC said in an online statement. In July, growth in sales of petroleum products and consumer goods was faster than the same period last year, while declines in growth of auto sales narrowed compared with June, the statement said. As the economy maintains stable growth with improved structure and higher quality, the consumption market will keep its growth momentum in the future, it said.

Sector Overviews

Top-and bottom-5 performing CITIC securities sectors of this week

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Indexes performance (as of Aug 17, 2018)

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Market Outlook

Rebound is on the way, as the rationale of large decline, low valuation and policy fine tuning with a loosening bias remains unchanged. The second dip is not surprising, and policy bottom comes ahead of market bottom. The fifth round of historically big bottom will persist for some time, and the movement to the right side of the arc may not occur until the passing of the deleveraging peak.

During past rebounds driven by policy loosening, it tended to be a scene in which value stocks underpinned the performance stage and growth stocks played the show. With monetary and fiscal policy support, the implementation of industrial policy focusing on the new economy is more favorable for growth stocks.

The second round of rebound after the second dip will see tech growth stocks showing higher resilience, such as 5G, semiconductor, etc. In the medium term, it will be a stage of arc bottom endurance. From this perspective, consumer white horse stocks remain a better choice for allocation.

 

Disclaimer

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