Eben@CANSLIM ResearchMorgan Stanley has reiterated an Attractive industry view on China Financials, arguing that Beijing is doubling down on anti-involution and de-leveraging rather than re-leveraging to boost short-term demand. Two September 2026 policies — a State Council circular on delayed payments to SMEs and an NDRC/SAMR notice on cost accounting for low-price competition — are seen as raising confidence in lower long-run financial risk. The bank argues this path, though painful near term, should contain leverage, support loan pricing and net interest margin (NIM), and drive a further re-rating of China financial stocks.
Key Takeaways
- Morgan Stanley maintains an Attractive industry view on China Financials, published in a report titled Doubling down in anti-involution and de-leveraging dated 15 September 2026.
- The State Council General Office’s 10 September 2026 circular encourages a maximum 60-day payment period and requires central SOEs to pay SMEs entirely in cash, with local SOEs instructed to follow.
- The NDRC and SAMR cost-accounting notice gives regulators an enforceable basis to identify below-cost, disorderly pricing without administratively setting prices.
- Mid-to-long-term manufacturing loan growth has slowed from a peak of more than 30% in 2023 to 6.6% by end-2025, which Morgan Stanley reads as effective containment of capacity expansion.
- Nearly 90% of manufacturing sectors have slowed capacity expansion versus 1H24, with overall industrial investment growth running below demand growth since September 2025.
What the Morgan Stanley Report Says
In a report titled Doubling down in anti-involution and de-leveraging, Morgan Stanley’s Richard Xu, CFA, Beryl Yang, Chiyao Huang, Rick Zhao and Chenqian Liu argue that Chinese policymakers are choosing the harder but more sustainable route to address over-capacity — optimising industrial supply through anti-involution measures rather than lifting already stretched domestic demand via leverage. The team frames the State Council’s June 2024 Rules for Fair Competition Review as the official start of the anti-involution campaign, and notes that its prohibition on illegal or improper local-government tax breaks for capacity expansion remains a core tool, with stricter enforcement in 2026.
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