Jiang Chao of Haitong Securities: A new round of stock bull market is brewing in the future

　　 Why do we have confidence in China's future? (Weekly Exchange and Thinking of Haitong Macro, 293, Jiang Chao, etc.)

Source: Jiang Chao's macro bond research

abstract

Three weeks ago, we wrote a report during the North American roadshow Historical Opportunities for Investment in China 。 Three weeks later, this time China's capital market performance is very competitive. Not only the bond bull market continues to soar, but also the stock market has a rare meal market.

In retrospect, thanks to our early writing, if we write two weeks later, we will comply with the professional norms and promote positive energy. After all, the economic and financial data released in October is still poor. If you just shout loudly, you can't dispel your doubts.

Why are we full of confidence in China's economy after just going out for a walk?

　　 Inspired by overseas Chinese, there is no middle-income trap!

In Canada and the United States, because they are countries of immigration, they can meet all kinds of people.

For example, at present, the "caravan immigrants" on the U.S. - Mexico border are making a lot of noise. Groups of immigrants from Central America come to the U.S. - Mexico border in caravans to try to immigrate to the United States. Trump, on the other hand, sent thousands of soldiers to be ready to prevent illegal immigrants from entering the country illegally.

As we all know, the United States is a country of immigrants. Why is Trump so nervous about these immigrants?

In fact, Canada is also a country of immigrants, and has been extremely friendly to refugees in history. After the end of World War II, Canada received 190000 European refugees, and after the Vietnam War, Canada received more than 50000 Vietnamese refugees. Due to the Syrian war, Canada has received a large number of Syrian refugees in recent years. The refugees in the past were well integrated into Canadian society, but this time the Syrian refugees in the past have caused great social unrest.

In the past, there were also Muslim immigrants from Iran in Canada. These people worked hard, so people also had a good impression of Muslim immigrants. But this time, a large number of Syrian refugees lived in hotels provided by the government and had free food and accommodation. Many people did not work for a long time, which made the local government overwhelmed.

Germany also has a similar experience. After World War II, Germany's economic development was short of people. It once introduced a large number of Turkish and Iranian workers who were hard-working. Later, Germany also relaxed the restrictions on naturalization of these workers. For example, Ozil, the former German national football team, was of Turkish origin. After the Syrian civil war, Germany also accepted a large number of Syrian refugees. The German government thought that these refugees had received higher education and were good labor resources. As a result, many Muslim refugees did not work after entering Germany, but lived on government relief, which is also very similar to the situation in Canada today. As the handling of the refugee problem has been questioned by the public, German Chancellor Merkel has announced that she will not run for the party chairman and premier.

On the one hand, it is to create difficulties for refugees, on the other hand, it is to open the door to skilled migrants and investment migrants. This shows that these developed countries do not welcome migrants, but the door to migration is not open to everyone, but mainly to rich people and high-tech talents.

　　 This also tells us that although people are equal, people are different from each other.

If we look at the situation of overseas Chinese, although they have encountered unfair treatment in the process of emigrating overseas, for example, the United States and Canada have introduced the infamous Chinese Exclusion Act, the Chinese still take root in the local area. After several generations of hard work, their living standards are basically in the upper middle class.

For example, in the United States, according to the Pew Research Center, among the four major ethnic groups in the United States in 2016, the median income of Asian families was $81000, higher than that of white families of $65000, Hispanic families of $48000, and African families of $39000. Among Asian Americans, the median income of Chinese families is $70000, which is also higher than that of white, Hispanic and African American families.

According to the research of the Association for Canadian Studies, among the Canadian working population in the 35-44 age group, the second generation of Chinese immigrants has the highest income level, with an average annual income of 65000 Canadian dollars.

Why can Chinese people in the United States and Canada come from behind and surpass the local people in work and income and become the upper middle class? In fact, the answer is very simple. Because Chinese people are hard-working, thrifty, hard working and saving, and have a tradition of valuing education, they tend to get better from one generation to the next.

So we can see that the economic level of a country like Singapore, which is dominated by Chinese, is far higher than that of neighboring countries. Even in Malaysia, Thailand and other countries, even though local Chinese are politically discriminated against, they still occupy a dominant position in the economy by hard work. For example, seven of the ten richest people in Malaysia are Chinese, and eight of the ten richest people in Thailand are Chinese. Mahathir, Malaysia, recently said publicly that Malaysians lost to Chinese in economic competition because of their bad attitude and lazy work culture!

Many of us have experience in overseas travel, and we all know that if we want to go shopping, we should choose the working days as far as possible. Otherwise, many shopping malls will be closed on weekends, and not only on weekends, but also on weekdays when the shopping malls are closed, because employees need to leave work on time to rest. In China, we will find that shopping malls are not closed until 10 p.m., and even open 24 hours a day. Many companies are still actively working overtime after work, and weekends and holidays are open all year round. Chinese people are absolutely second to none for their diligence.

According to the data from the Bureau of Statistics, urban employees in China work an average of 46 hours a week, while the data from the U.S. Department of Labor shows that Americans work an average of 34.5 hours a week, and EU employees work an average of 36.4 hours a week. Even German employees, who have always been known for their diligence, work an average of 34.9 hours a week, far less than China. In Hong Kong, China, the average working time per week reaches 50 hours, and Hong Kong's wealth is also related to its diligence.

At present, China's per capita GDP is close to US $10000. Everyone is worried that we will fall into the middle-income trap and that there will be pressure on the economy in the future. But in fact, many Southeast Asian and Latin American countries that fall into the middle-income trap are actually due to laziness and other reasons. The inspirational experience of overseas Chinese tells us that, for Chinese, they can live a good life with hard work no matter where they are, which shows that there is no middle-income trap for the Chinese nation.

　　 How can we all work so hard without hope?

　　 House price decline is not the end, no slump is not a crisis!

But some people will say that although we all work hard, the problem is also very serious. In recent years, residents have borrowed money to buy houses, resulting in a serious real estate bubble. What should we do if the house price drops significantly? After all, real estate is the pillar of China's economy, and no one knows how much the house price will fall and how much impact it will have.

Indeed, letting residents borrow to buy houses is a dead end. I believe that if you see the consequences of this year's sharp decline in consumption growth, you will surely regret why we went this way. The reports we wrote in 2016, "Residents Leverage, Dangerous Game!" and 17 years, "Summit of Prosperity", include that we have been angry about high housing prices in the past two years. In fact, we are worried about the consequences of debt development.

But economic development is just like people. It is not that they will lose opportunities if they make mistakes. This time when we went to Canada, we found that they made the same mistakes as us in the past. But as long as they are willing to correct their mistakes, the sun will still rise as usual.

After the financial crisis, house prices in Canada rose by as much as 220%, while in Toronto, Vancouver and other big cities, house prices rose mainly after 2013, and have more than doubled since 2013. The reasons for the rise of house prices include the speculative buying caused by the influx of overseas buyers, but the core reason is still the ultra-low interest rate environment, which stimulates residents to continue to borrow to buy houses. At present, the resident debt/GDP has exceeded 100%, and the resident debt/income has exceeded 150%, which is much more serious than in China.

However, due to the concern that housing prices are rising too fast, many local governments in Canada have implemented various policies to curb housing prices in 17 years, such as the introduction of foreign transaction tax, which means that 15% more tax should be paid if you buy a house without a green card, and even the implementation of a 1% housing vacancy tax in Vancouver. If you dare to collect taxes if you can't afford to buy a house, you will be hurt! Under the pressure of multiple policies, Canada's house prices fell sharply.

Although the housing price fell sharply, it did not lead to the collapse of the Canadian economy, and its economy still maintained a sustained growth. We observed that its housing price decline has the following two important characteristics:

First of all, although the house price has more than doubled, the house price has not fallen back to the original point because of a 50% drop. Even Vancouver, the first place to levy taxes, has seen its house price fall by less than 30%. Secondly, not all house prices are falling. The prices of highly speculative villas have fallen sharply, but the prices of apartments that just need support are relatively stable.

The change of housing prices in Canada can actually give important enlightenment to the future housing price trend in China:

　　 First of all, we expect that the decline of China's housing prices in this round will not exceed 30% 。 This round of house price rise began in 2015. In the past four years, the house price in many cities has doubled or so. This short-term sharp rise is driven by the huge debt of residents, which is obviously unreasonable. On the other hand, the nominal growth rate of China's GDP has been around 10% every year in the past four years, and the cumulative growth rate has reached 40% over the past four years, which means that at least 40% of the housing price rise should be reasonable, so even if the housing price falls, it should not fall back to the original point, and we believe that a decline of about 30% should be the extreme.

We know that there is a clear requirement for down payment when buying a house in China. The down payment ratio of the first set of housing is more than 30%, and the down payment ratio of the second set of housing is more than 50%. Therefore, as long as the price decline does not exceed 30%, there will not be a large number of negative housing assets, and there will not be a systemic risk impact on China's financial system.

　　 Secondly, the impact of this fall in house prices on different regions will be significantly different. For speculative house purchases, especially in cities below the third tier, due to the lack of population inflow and industrial support, the rise of house prices is obviously driven by the monetization of the shed reform. At present, the monetization of the shed reform is gradually withdrawing, so the regional house prices of these speculative house purchases will face significant pressure of callback.

However, in the first and second tier cities and their surrounding areas, the population is still flowing in, and has the support of industry, education, medical care and other resources. There is just needed support behind the rise of housing prices. In addition, the purchase restriction policy implemented in the past few years to regulate housing prices will actually bring new demand once slightly relaxed, so the decline of first and second tier housing prices should be relatively limited.

Therefore, there is no need to panic about the future housing price decline in China. First of all, the decline should be limited, and it will not generally break down the 30% down payment ratio, causing concern about the financial crisis; Secondly, in the vast number of first and second tier cities, which are the lifeblood of China's economy, the decline in housing prices is relatively small due to the just needed support such as population inflow.

Therefore, Canada, which is similar to us, has told us with experience that the decline of house prices is not the end of the world, and the economy can still operate normally without real estate!

　　 Education and health care are really valuable, and service consumption is the future!

The question is, if China's economy leaves real estate, what can it rely on in the future?

In fact, in Canada, we found that there are two important answers behind this question.

　　 The first answer is the service industry.

Although Chinese continue to immigrate to Canada, many of them have been new immigrants from mainland China in the past 20 years. Since they arrived in Canada late, all the good places have been settled by local people. Therefore, new Chinese immigrants do not live in Chinatown, but live far away from the center of the city.

However, Chinese people prefer to live in groups, so they all live together. In addition, an important feature of Chinese people is that they attach importance to education. So after the Chinese moved in, the local school examination results began to improve by leaps and bounds, so it became a school district house, and then the price of the house rose.

This story actually tells us that what is really valuable is not a house, but a pile of steel and cement. What is really valuable is the education, medical care, public services and other resources behind the house.

In fact, it is similar in China. For example, the housing price in Shanghai has declined a lot, but the price of school district housing has not declined much. This is the value of education.

Therefore, education and medical services must be the hope for the future development of China's economy.

　　 The second answer is actually from the capital market.

In fact, there are not many industries that Canada can win. For example, Canada is rich in oil sand resources, but because the government is inefficient and cannot repair oil pipes, the oil price is particularly cheap. In the past, real estate was a pillar industry, but it has also died out in recent years. Why can Canada be so developed?

　　 A very important reason is actually the developed enterprise annuity. We have come into contact with many large pension institutions in Canada. Almost every major province has a variety of pension institutions, such as teachers' funds, doctors' funds, etc. Statistics Canada shows that in the second quarter of 2018, the value of pension insurance and annuities held by Canadian residents reached $2.6 trillion, which is 120% of its GDP.

These pension institutions are all market-oriented operations, investing residents' assets in the most promising capital market in the world. We can simply calculate a sum. If the return rate of Canada's pension can reach 5%, in fact, the growth of its residents' pension will exceed the economic growth. So even if some of the residents' real estate bubble has burst, the bubble can be finally digested through time through the continuous appreciation of their pension.

The main market for pension investment in Canada is the United States. The average annual return rate of the NASDAQ index in the United States in the past 40 years has reached 10%, which is the main reason for the preservation and appreciation of the wealth of Canadian residents.

So, after the real estate boom, the Canadian economy relied on the service industry, and the prosperity of the U.S. capital market to support the growth of residents' wealth. In the final analysis, it is the service industry and the U.S. economy. So what is the secret of developing the service industry and the U.S. economy?

　　 The strength of the United States depends on innovation, and Huawei represents China's hope.

When we observe the economic structure of the United States, there is a huge difference between China and the United States.

In the United States, 80% of its economy is the service industry, while the secondary industry accounts for 18%. At present, the total GDP of the United States is 20 trillion dollars, the corresponding added value of the service industry is 16 trillion dollars, and the added value of the secondary industry is about 4 trillion dollars. The total GDP of China is about US $13 trillion, of which the service industry accounts for 52%, corresponding to US $6.8 trillion, while the secondary industry accounts for 40%, corresponding to US $5.2 trillion.

This shows that the added value of China's manufacturing industry has actually exceeded that of the United States. The main part of the U.S. economy that is stronger than China's economy is the service industry, whose added value of the service industry is more than twice that of China.

　　 So, we have to ask, why is the American service industry stronger than us?

When you travel to the United States, you will certainly feel sorry for the tip system in the United States, because no matter what you do, as long as it involves service, you will have to tip. For example, when you go to a restaurant to have a meal, the customary tip is about 18% of the meal fee. The problem is that if the service is really good, you can pay a tip. Sometimes there is no service at all, and you have to pay a tip, which will actually make people feel uncomfortable.

On the contrary, we eat in China. Due to full competition, many services are not inferior to those in the United States. For example, the wonderful service of Haidilao has made everyone unable to stop, but no extra tips are required.

Therefore, for the service industry, there is no significant difference in production efficiency. For example, there is no essential difference in the work content between American nurses and Chinese nurses, and American teachers and doctors are not necessarily better than Chinese nurses.

　　 However, the most significant difference in the service industry is actually in wages.

We counted the wages of six major service industries, including transportation, information services, finance, business services, education, culture and entertainment, and found that the average wage in the United States is about 50000 dollars, while in China it is about 50000 yuan. The gap is exactly the exchange rate between China and the United States, which is a full seven times.

Therefore, the American service industry is stronger than us, not because they serve better than us, but because their wages are much higher than ours, so they serve each other more happily.

　　 The question is, why can the American service industry have such high wages?

The first reason is that the service industry is not free to circulate. If there is a huge wage difference in the manufacturing industry, these manufacturing industries have already run out. This is also the fundamental reason for the hollowing out of the manufacturing industry in the United States. Trump's call for "Made in America" is not so easy to return, but the service industry is different, It is impossible for Chinese nurses to go to the United States on a large scale to provide services.

But the most fundamental reason is that American residents have the money to pay for high service prices. The question is where do American residents get their money?

　　 In fact, the fundamental source is the powerful high-end manufacturing industry. It seems that the United States does not have many manufacturing industries. In fact, they do not have low-end manufacturing industries, but occupy the most high-end R&D and design in the manufacturing industry, and grab the largest profits.

We can take Apple as an example to understand why the United States is strong.

At present, Apple's mobile phones can be sold for about $800 each, while the global average selling price of smart phones is about $400, and the production cost of smart phones is about $400, which means that Apple can earn $400 for every one sold, while other mobile phone companies can't earn money at all. This is also a reflection of the mobile phone industry chain for many years. Apple has accounted for 80% of the profit share of the mobile phone industry chain with less than 20% of the sales of mobile phones.

The annual sales volume of Apple's mobile phones is 200 million, so it can achieve a profit of 80 billion dollars by selling mobile phones. With more than 10 times the valuation, its stock market value is as high as 1 trillion dollars.

Why is everyone willing to pay $800 for Apple's mobile phones? Because their performance is very good! Apple invests more than 10 billion dollars in R&D every year, which is in return for the excellent performance of Apple's mobile phones, so innovation can grab the maximum profits.

One Apple has a market value of $1 trillion. If there are 20 apples, their market value will reach $20 trillion of the US GDP. The United States has not only one Apple, but also a series of great companies such as Amazon, Google, Facebook, etc.

　　 Another mystery lies in the huge pension system in the United States. At present, the total pension amount of the United States is up to 30 trillion dollars, 1.5 times of its GDP. The pension of American residents has been invested in excellent enterprises in the United States through 401K pension plans and other pension plans, which means that as long as these large enterprises can occupy the high point of innovation and keep earning profits to drive stock prices up, American residents can share the appreciation of wealth through pension plans, With money, we have the conditions to serve each other.

Therefore, on the basis of the huge service industry in the United States, it is a more developed high-end manufacturing industry. Although China is a global manufacturing factory, we have always been in the low-end production and processing part of the manufacturing industry in the past, squeezing in the 80% of mobile phone factories other than Apple to strive for 20% of the profit share of mobile phones. If we can't make money, of course, we can't afford to serve each other.

For example, on the eve of its listing, Xiaomi Company shouted the slogan that the comprehensive profit rate of the hardware business should not exceed 5%. This is a conscience of the industry, but it is also a sorrow. Because the average price of Xiaomi's mobile phones in 17 years was only 881 yuan, just over $100, because the profit rate was 6%, no one might buy them.

　　 However, Huawei's great progress has given us a glimpse of hope!

When we were in North America, we heard a story that Chinese people usually buy some brand bags and clothes when traveling abroad because they are much cheaper than domestic ones. Now foreigners are also popular in China to purchase mobile phones on behalf of others, and Huawei mobile phones rank first in purchasing on behalf of others. The reason is that Huawei mobile phones sold overseas are generally about 1000 yuan more expensive than domestic ones. This time, the overseas version of Mate20 series is even about 2000 yuan more expensive than the domestic version. Buying more Huawei mobile phones will earn back the travel expenses!

In the past, the average price of Huawei's mobile phones was less than 300 dollars, but the price of Mate20 in Europe reached 800 euros, which actually reached the price range of Apple's mobile phones. This means that Huawei has officially entered the high-end smartphone market monopolized by Apple and started to share the profits of Apple's mobile phones. Recently, Apple's stock price has dropped sharply, because its sales volume and performance outlook have declined significantly. Why are Americans so nervous about Huawei, or even directly prohibit Huawei from entering the U.S. mobile phone market, is actually afraid of Huawei's impact on Apple and other core industries. Innovation is the foundation of a strong U.S. economy!

Huawei's ability to compete directly with Apple in the high-end smartphone market lies in its continuous high R&D investment. Huawei's R&D investment in 2017 was 90 billion yuan, while the second largest R&D expenditure in China was PetroChina In 2017, the total R&D expenditure was 18.6 billion yuan, only 1/5 of that of Huawei.

It is the continuous high R&D investment that enables Huawei to have its own chip technology. In a sense, Huawei is even greater than Tencent, Alibaba and other companies, because the success of the latter two companies is mainly due to the domestic market, while Huawei is fully competitive in the overseas market, and it is to seize the city and continue to move towards the highest end.

This year, Huawei's mobile phone sales have exceeded Apple's, reaching an order of magnitude of 200 million. If the average sales price of its mobile phones can also rise from $300 to $800, its profit will also reach $80 billion, and its potential market value will also be close to $1 trillion.

The total economic output of China is 13 trillion US dollars, which means that if there are more than a dozen Huawei companies, the total market value will reach the total economic output of China, and the wealth created by them will be enough to increase the income of Chinese residents, defuse the risk of debt bubbles, and the Chinese economy will also be full of hope.

　　 Shrink the currency to crack down on speculation, cut taxes and fees, stock and debt are both strong!

　　 Since Huawei represents China's hope, why is there only one Huawei?

In fact, the answer is very simple, because Huawei needs to invest 100 billion yuan in R&D, which may not be effective. This is too difficult. In the environment of excessive monetary issuance, the first choice for everyone is to be Evergrande and Country Garden. You can't see that in the past six years, the richest man in China has been the real estate owner for four years, while the richest man in the United States has always been the technology giant. Gates of Microsoft has been the richest man in the United States for more than 20 years, and recently changed to Bezos of Amazon.

In fact, in the United States, the whole 1970s was also the era of speculators. At that time, the stock market had not risen, which meant that there was no return on industrial investment. However, the soaring prices showed that all kinds of speculators were making money at that time. Bunk, the richest man in the United States in the 1980s, became an oil tycoon and finally became an oil tycoon agriculture products Speculation began to make silver in 1979. At its peak, it owned 70% of silver in the New York Mercantile Exchange.

However, after the 1980s, due to the sharp drop in silver prices, the speculative Bunk went bankrupt, and the new richest man came from two industries: first, the technology industry. Microsoft Gates and Amazon Bezos became the richest man in the United States one after another; There is also Buffett in the investment industry, who once became the richest man in the United States.

Buffett has enjoyed two big dividends of the stock and bond bulls in the US capital market: first, the US interest rate has been declining for 30 years, and the financing cost of Buffett's insurance companies is getting lower and lower; The other is the innovation dividend of the United States. The NASDAQ index has increased 50 times in 40 years. Buffett's investment income is getting higher and higher, so his company is getting bigger and bigger.

　　 Behind this change was Ronald Reagan, one of the greatest American presidents after the war. In 1980, the slogan of his presidential campaign was "make America great again". Does that sound familiar? Yes, Trump's campaign slogan is actually a copy of Reagan's original words. You can become the President of the United States by copying!

After Reagan was elected President in 1981, he put forward the famous Economic Recovery Act, the core idea of which came from the supply school, First is shrinking money He believed that the excessive monetary issuance was the root cause of high inflation, so he supported the policy of tightening monetary policy of Volcker, the chairman of the Federal Reserve at that time. After the sharp monetary contraction, it brought about a sharp drop in inflation and interest rates, as well as a bull market in the bond market for 30 years.

This year, China's bond market went out of the bull market. The interest rate of 10-year treasury bonds fell from 4% to below 3.4%. The most important reason behind this is the monetary contraction. This year, the structure of the bond bull market has also been significantly differentiated. On the one hand, the risk-free interest rate represented by the national debt interest rate has dropped significantly, but on the other hand, due to the rise of credit default risk, the risk-free interest rate represented by AA class corporate bonds has risen significantly since the beginning of the year. This shows that our financial deleveraging in the past two years is absolutely the right policy choice, which not only helps us reduce the risk-free interest rate, but also punishes those speculators who used to borrow recklessly, and deleveraging helps us drive out the bad currency in the economy.

　　 Reagan's other major policy proposition was tax cuts. He believes that the high tax burden has curbed the enthusiasm of the private sector for production and investment. During his tenure, he implemented two large-scale tax reduction policies, which significantly reduced the three tax rates of corporate income tax, personal income tax and capital gains tax.

Thanks to the large-scale tax cuts, the proportion of R&D expenditure in the United States began to rise again in the 1980s after a decline in the 1970s, while the proportion of intellectual property investment representing innovation continued to rise from the 1980s. Driven by tax cuts, the United States entered the era of information technology led by innovation.

When we compare the listed companies in China and the United States, we find that one of the biggest differences is that the R&D expenditure of American companies is very large. In 2017, the average R&D expenditure per company was more than 200 million dollars, while the R&D expenditure per A-share listed company was only more than 100 million yuan, nearly 10 times the difference between the two, which shows that the R&D expenditure of Chinese companies has great room for improvement.

In the past, due to excessive currency and heavy tax burden, a large number of enterprises like to speculate in the real estate bubble and ignore R&D innovation. If we are determined to shrink the currency and reduce the tax burden in the future, we believe that more and more enterprises will learn from Huawei. In addition, with 10 million college graduates as the backing every year, and the Chinese nation is so diligent, China's R&D and innovation will be full of hope.

Looking ahead, China is facing a historic choice:

The first option is to continue the over issuance of money, which corresponds to the Latin American stagflation model, which means that physical assets such as houses and commodities should be allocated, while financial assets have no value for allocation, which is actually our experience in the past 10 years.

The second is large-scale infrastructure construction, which corresponds to the Japanese style long-term depression, because the government investment squeezes out all effective investment, and the economy is inefficient, which corresponds to the bull in the bond market and the bear in the stock market.

The last one is the American style tax cut, which corresponds to the double bull market of stock and debt, especially the bull market of innovation.

We believe that the new financial deleveraging and asset management regulations in the past two years represent that we have made up our mind to shrink the currency and will not follow the old path of over issuance of currency. The lifelong accountability for the new implicit debt of local governments means that infrastructure investment is only a support rather than a strong stimulus. The reduction and exemption of value-added tax and individual tax, and the sharp decline in tax growth mean that tax cuts and fees have been on the way.

Therefore, China has chosen to collect money and reduce tax burden, which shows that we are expected to move towards the American style double bull road of stocks and bonds. This year's bond bull market has been shining brightly, and a new round of stock bull market is in the process of breeding in the future, so we say that the current Chinese capital market is facing historic investment opportunities.

　　 1、 Economy: Downward pressure remains high

　　 one ）Property below the third tier declined. In the first half of November, the sales of real estate in 36 major cities fell by 4% year on year, narrower than that in October. Among them, real estate sales in 22 first and second tier cities increased by 3.6% year on year, while that in 14 third and fourth tier cities decreased by 34% year on year, an increase from October.

　　 two ）Car sales continued to decline. In the first week of November, the retail sales of passenger cars of the Passenger Transport Federation decreased by 41% year on year, and the wholesale and retail sales decreased by 38% year on year, which was significantly larger than that in October.

　　 three ）Industrial production remains sluggish. In the first ten days of November, the coal consumption for power generation of the six major power plants decreased by 10% year on year, which was narrower than the - 19% in October, but the decline was still large.

　　 2、 Price: inflation trend falls

　　 one ）Food prices fell. Last week, vegetable prices fell, edible oil, grain and aquatic products prices fell, pork prices rebounded, and food prices fell as a whole.

　　 two ） eleven month CPI Fall back. Since November, the prices of edible agricultural products and wholesale prices of agricultural products of the Ministry of Commerce have fallen by - 1.1% and - 2.3% month on month respectively. We predict that the CPI will fall by 0.9% month on month in November and fall to 2.4% year on year in November.

　　 three ） PPI Continue to fall. Last week, the coal price and steel price fell back, and the oil price fell sharply. As of November, the price of port futures means of production has fallen 0.8% month on month. It is predicted that the PPI will fall 0.5% month on month and 2.3% year on year in November.

　　 four ）The inflation trend has fallen back. Since November, not only the price of food has continued to fall, but also the price of oil and other means of production has also dropped significantly, which not only means that short-term inflation will fall significantly, but also indicates that under the background of economic decline, future inflation may trend back.

　　 3、 Liquidity: easing expected to rise

　　 one ）Monetary interest rates rebounded. last week R007 The average increased by 7BP to 2.63%, R001 The average increased by 21p to 2.39%. DR007 goes up 4bp to 2.61%, and DR001 goes up 21bp to 2.35%.

　　 two ）The central bank withdrew slightly. Last week, the central bank suspended open market operations, and 120 billion yuan was withdrawn from treasury fixed deposits when they expired.

　　 three ）The exchange rate rebounded slightly. Last week, the US dollar index fell back, the RMB rebounded slightly against the US dollar, and the onshore and offshore RMB exchange rates rose to 6.94 and 6.92 respectively.

　　 four ）Relaxation is expected to increase. The central bank announced that the growth rate of M2 in October fell to 8%, the total amount of social financing in October fell to 728.8 billion, and the growth rate of total social financing in October fell to 10.2%. In October, off balance sheet non-standard financing continued to shrink, driving down the growth rate of monetary financing, which also means that the risk of subsequent economic downturn is still large. In order to maintain the stable operation of monetary credit, there is still the possibility of further reduction in the ratio in the future.

　　 4、 Policy: increase private enterprise credit

　　 one ）Improve urbanization financing. The National Development and Reform Commission said that it would improve the investment and financing mechanism for new urbanization construction, maintain effective investment strength and accuracy under the premise of controllable debt risk, improve the management system for local bond issuance, and complement the soft and hard weaknesses of urban facilities with strong externalities; We will guide non-public enterprises into franchising, optimize the government and social capital cooperation (PPP) model, and promote the formation of a market-oriented and sustainable urban construction investment and operation mechanism.

　　 two ）Accurately mend weak points. The National Development and Reform Commission said that in the three years after the "13th Five Year Plan", the task of infrastructure construction is still arduous. The National Development and Reform Commission will further deepen the supply side structural reform, further accelerate the preliminary work of major projects, increase capital raising measures, mobilize the enthusiasm of private investment, and focus on precisely correcting weaknesses in strict accordance with the requirements of the State Office Document No. 101 and the division of tasks.

　　 three ）We will increase credit for private enterprises. The Central Bank held a symposium on the analysis of the monetary and credit situation of financial institutions. Yi Gang, governor of the People's Bank of China, pointed out that the financial sector should take the initiative to plan the pace and intensity of credit supply in a reasonable manner in view of the difficulties and expensive financing problems that some enterprises still face.

　　 5、 Overseas: international oil prices plummeted, and Germany's economy shrank

　　 one ）The international oil price plummeted and the US crude oil inventory increased. Last Tuesday, WTI oil price fell below $56/barrel for the first time in the year, and hit the biggest decline in three years. Last week, OPEC and the International Energy Agency also mentioned that, considering the slowdown of international economic growth and other factors, they lowered the crude oil demand forecast for next year. Last Thursday, the US Energy Information Administration announced that EIA crude oil inventory increased by 10.27 million barrels that week, the eighth consecutive week of growth, the largest weekly increase since February 2017.

　　 two ）The British Cabinet reached consensus on the draft of withdrawal from Europe. Last Wednesday, the British Cabinet reached a consensus on the draft agreement on the withdrawal of the UK from Europe, which means that the agreement on the withdrawal of the UK from Europe will go to the next step and await the approval of Parliament. But then, four senior officials of the British government, including the Minister for Retirement from Europe, resigned one after another, and several members of Parliament submitted applications for a vote of no confidence in Prime Minister May.

　　 three ）Affected by temporary factors in the automobile industry, Germany's economy shrank in the third quarter. On last Wednesday, Germany released economic data, and Germany's GDP in the third quarter was initially - 0.2% quarter on quarter, lower than the expected - 0.1% and the previous 0.5%. The German Economy Minister said that the contraction of GDP in the third quarter was mainly due to the influence of the automobile industry. In response to the new emission standards, many German automobile enterprises temporarily stopped production in the third quarter, leading to a decline in the output of the automobile industry. The German economy is still in good condition, and it is expected to resume growth in the fourth quarter.

　　 four ）The US tightening cycle is nearing its end. The yield of US treasury bonds fell sharply. The new vice chairman of the Federal Reserve, Clarida, said that the US interest rate was close to the neutral level predicted by the Federal Reserve, suggesting that the current tightening cycle might end soon, and the yield of 10-year US treasury bonds fell to 3.067%.

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