The strong economic rebound since 2H20 continued its momentum in 1H21, but in a

divergent fashion. Lingering PPI inflation remains a concern and triggered a less upbeat

business conditions for some manufacturers, according to the CS CQi team surveys. We

expect continued recovery in 2H21, but at a slower pace given the higher base. CS economics team forecasts 2021 GDP growth of 8.2% for China, implying 5.8% and 4.7% of YoY GDP in 3Q21 and 4Q21, down from 7.9% 2Q21. Infrastructure and manufacturing FAIs are poised to accelerate on the back of higher liquidity, and consumption is likely to further recover. Property investment is likely to be unexciting due to tight policy.

As economic normalisation comes closer to an end, we see early signs of less aggressive tightening or even moderate easing but no U turn in policy. The recent surprise RRR cut may pave the way for gradual fine tuning of monetary policy. The fiscal policy is likely to be increasingly accommodative given potential acceleration of special bonds issuance.

Regulatory changes would definitely promote competition, leading to more innovation in the long run, despite generating short-term uncertainty, in our view. Increasing regulations appear to be a global trend given the exponential growth in the digital economy. The authorities also pledged to promote the quality of development in the capital market, which will help accelerate Chinese companies’ return to the home market, along with regulatory changes.