CICC has released a research report forecasting that domestic demand growth may improve slightly in September, while export growth remains elevated. On the consumption front, durable goods consumption continues to face pressure, while offline consumption activity has seen some recovery. On the investment front, driven by manufacturing and infrastructure, the cumulative year-on-year decline may narrow marginally. Exports, benefiting from the high prosperity driven by AI, maintain rapid growth. September inflation may rise further, with PPI growth potentially climbing to around 4.5%, surpassing the year's high set in June. The bank expects third-quarter GDP year-on-year growth of around 4.5% (previous reading: 4.3%). CICC's main views are as follows:

Retail sales growth may edge up slightly. Auto and home appliance sales data suggest that durable goods consumption growth in September may come under pressure. The China Passenger Car Association estimates that narrow passenger vehicle retail sales in September fell 24.7% year-on-year, widening from the 23.6% decline in August. Aowei data shows that the retail sales decline for four major categories of home appliances also widened in September. However, offline consumption activity may have improved in September. For example, the year-on-year decline in hotel revenue per available room, or RevPAR (4WMA), narrowed compared with August, and the year-on-year increase in foot traffic at urban commercial districts expanded. Considering that retail sales growth was gradually declining over the same period last year, total retail sales growth in September may rise slightly to 0.5% (August: 0.4%).

Fixed asset investment decline may narrow slightly. The bank expects fixed asset investment growth of -7.0% for January-September (January-August: -7.2%). Export momentum continues, and on the funding side, support from new policy-based financial instruments and ultra-long special government bonds may accelerate. The bank expects manufacturing investment cumulative year-on-year growth of -2.0% for January-September (January-August: -2.3%). The National Development and Reform Commission is accelerating project supervision, and the year-on-year decline in infrastructure investment may narrow somewhat. September continued the accelerated pace of special bond issuance seen in August, new policy-based financial instruments began disbursement, and the construction sector PMI rebounded from 46.9% in August to 50.3%. The bank expects infrastructure investment to continue improving in September, with January-September infrastructure investment year-on-year growth narrowing from -4.0% in January-August to around -3.8%.

Property sales year-on-year may weaken marginally, and development investment is expected to remain under pressure. On the sales side, following demand-side policy optimization in some cities earlier, new home transaction area in 30 cities rebounded month-on-month in September after declining, but the recovery magnitude remained limited, with the year-on-year decline widening from 6.3% last month to 10.8%. On the land side, amid the backdrop of extended capital occupation cycles for some projects after the August 28 new policy, developers still face funding constraints and remain cautious in land acquisition. Residential land transaction planned gross floor area in 300 cities widened its year-on-year decline to 34.6% in September, and transaction value also turned to a 19.7% year-on-year decline. On the investment side, as the land market cools somewhat, combined with weak developer sales collections and persistently weak new construction, the bank expects real estate development investment cumulative year-on-year growth to fall further to around -21.4% in September (August: -19.9%).

Export year-on-year growth may be roughly flat compared with August. From the demand perspective, manufacturing activity in overseas economies remains relatively strong overall, with the U.S. S&P manufacturing PMI rising 3.1 percentage points month-on-month to 57.0% in September, and emerging industries such as AI in particular maintaining high prosperity, supporting China's exports to sustain relatively high growth. The new export orders sub-index of China's official manufacturing PMI fell 0.1 percentage points month-on-month to 50.0% in September. From other high-frequency data, driven by AI, South Korea's daily average export value in the first 20 days of September rose 89.7% year-on-year on a working-day basis (August: +72.6%), with semiconductor daily average exports and imports up 282% and 101% year-on-year respectively (August: +216% and +75%), showing accelerated growth. However, the higher base from the same period last year may slightly drag on export year-on-year growth. Overall, the bank expects China's exports and imports to grow 24.9% and 19.8% year-on-year in September (August: 25.0% and 28.2%).

Driven by the quarter-end effect, industrial value-added year-on-year growth may rise. High-frequency capacity utilization data across major industries showed mixed year-on-year changes. The production sub-index of the September PMI rose 1.3 percentage points month-on-month to 51.7%, which may partly reflect some enterprises concentrating production scheduling and deliveries at quarter-end, and partly relate to the easing of negative impacts from energy supply such as coal on a month-on-month basis. The bank expects industrial value-added year-on-year growth of 6.2% in September (August: 5.2%). Overall, the bank expects third-quarter GDP year-on-year growth of around 4.5% (second quarter: 4.3%).

September CPI year-on-year may rebound to around 1.0% (August: 0.8%). On food, with pork supply still relatively ample while seasonal consumption improves, pork prices across 22 provinces and cities rose slightly from last month, and combined with last year's low base, the year-on-year decline narrowed from 20.9% last month to 16.9%. As the impact of high-temperature and rainy weather disturbances gradually fades, the month-on-month increase in average vegetable prices in September may be weaker than the same period last year, driving a possible widening in the year-on-year decline. Fresh fruit supply is generally ample, prices continued to weaken month-on-month, and the year-on-year decline may also have widened. On energy, affected by rising international oil prices, domestic refined oil prices were raised twice on September 11 and 24. The bank expects vehicle fuel prices to continue rising month-on-month, and combined with lower oil prices in the same period last year, September energy prices may rebound notably year-on-year. On core inflation, after the summer break ended in September, prices for services such as air tickets, travel, and hotel accommodation face seasonal downward pressure, but prices for industrial consumer goods such as consumer electronics still have some support. The bank expects core CPI year-on-year to remain broadly stable.

September PPI year-on-year may rise further to around 4.5% (August: 3.8%). The main raw material purchase price index and ex-factory price index of the September PMI reached 60.8% and 54.0% respectively, up 4.2 and 3.6 percentage points from last month, implying a month-on-month PPI of around 0.7% (August: 0.4%). On energy, repeated Middle East geopolitical conflicts pushed up the crude oil supply risk premium, with Brent crude average prices rebounding to around $100 per barrel in September, driving synchronized increases in domestic diesel and other petroleum product prices. Domestic coal supply recovery remained slow and port destocking pushed coal prices higher. The bank expects energy chain-related prices to be the main factor driving the month-on-month PPI increase. On non-ferrous metals, with mine-side supply remaining tight, copper prices mainly fluctuated at high levels, and PPI year-on-year growth for non-ferrous-related industries may remain relatively high. On ferrous metals, rising coking coal and coke prices provided cost support for steel, but terminal demand recovery in property and infrastructure remained relatively limited, and rebar prices weakened after rebounding early in the month. On building materials, rising coal prices combined with seasonal marginal improvement in construction demand pushed cement prices to stabilize somewhat, and float glass prices also edged up due to restocking demand.

Policy efforts may drive a marginal stabilization in September financial data. Government bond net issuance in September was 1.59 trillion yuan, an increase of about 350 billion yuan year-on-year, with both the absolute amount of net issuance and the magnitude of the year-on-year increase hitting new highs for the year, which will provide important support for total social financing. In addition, starting in late September, the 3-month discount rate for state-owned and joint-stock banks steadily rose from the 0.5% low seen since the beginning of the month, closing at 0.7% on September 30. In contrast, during the last 10 days of March and June, the 3-month discount rate for state-owned and joint-stock banks fell by about 30bp, making the third quarter the first quarter this year to end with bill rates rising. Combined with the fact that new policy-based financial instruments began disbursement in September, September credit extension is likely to improve from August, with the year-on-year decrease narrowing. Overall, the bank expects new yuan loans of around 1.2 trillion yuan in September, new total social financing of around 3.6 trillion yuan, with the year-on-year growth of the outstanding total social financing stock flat at 7.2% and M2 year-on-year growth flat at 7.5%.

Market observation: Global equities diverged this week, the U.S. Treasury curve bear-steepened, the dollar strengthened, and copper, gold, and oil declined. On equities, China's September manufacturing PMI rebounded 0.3 percentage points to 50.1%, returning to expansion territory, with marginal improvement in activity. As of before the National Day holiday, the CSI 300 fell 1.8%, with real estate, pharmaceuticals, and banks leading gains. U.S. September non-farm payrolls added 29,000 jobs, below the revised 133,000 in August, and the unemployment rate rose from 4.1% to 4.2%, indicating marginal cooling in employment. The S&P 500 fell 0.3%, the Nasdaq rose 0.5%, the Hang Seng Index fell 2.2%, the Nikkei 225 rose 2.9%, and the German DAX fell 0.7%. On bonds, China's 1-year and 10-year government bond yields fell 1.3bps and rose 0.8bps to 1.22% and 1.68% respectively. U.S. 2-year and 10-year Treasury yields rose 2bps and 11bps to 4.83% and 5.28% respectively, with the term spread widening by 9bps. Japanese and German 10-year government bond yields rose 2.1bps and 3bps to 3.09% and 3.66% respectively. On currencies, the dollar index rose 1.0% to 101.93, the yuan appreciated 0.1% against the dollar to 6.71, appreciated against the euro, and depreciated against the yen. On commodities, LME copper, LME gold, and Brent crude fell 2.5%, 3.3%, and 1.7% respectively. Domestic glass and live hogs fell 2.4% and 1.3% respectively, while rebar rose 0.2%.

Recently, Chinese and U.S. stock markets and long-end interest rates have diverged simultaneously, reflecting differences in the two countries' economic fundamentals. Since 2025, led by the AI sector, Chinese and U.S. stock markets had risen in tandem, with broadly consistent trends. But starting in July, trends began to diverge. Compared with end-June, the S&P 500 rose slightly by 3%, while the CSI 300 fell 12% over the same period, with the U.S. Mag 7 index up 13% while the domestic AI index fell 24%. At the same time, the divergence in Chinese and U.S. long-end interest rates further intensified. Chinese and U.S. long-end rates had gradually diverged since 2021, and the gap widened further in the third quarter of this year. From end-June to now, the 10Y U.S. Treasury yield rose 85bps to 5.29%, while the 10Y Chinese government bond yield fell 5.3bps to 1.71%. The simultaneous divergence in Chinese and U.S. stock markets and long-end interest rates reflects a misalignment in the two countries' economic fundamentals. The AI-driven investment cycle and inflation risks have pushed up expectations for the U.S. neutral rate and policy rate, and support for earnings has driven U.S. stocks and rates higher together. On the domestic demand side, August retail sales grew only 0.4% year-on-year, and fixed asset investment fell 7.2% in the first eight months. The recent supply recovery has not yet translated into a broad demand rebound. Looking ahead, comparing with the similar stock market and long-end rate divergence between China and the U.S. in 2023, it may mean that domestic counter-cyclical adjustment policies may accelerate in stages in the near term. At the end of September, interest subsidies for eligible first-home mortgages, PSL rate cuts and expansion, and increased relending quotas were already introduced. If bond funds and policy-based financial instruments subsequently accelerate the formation of physical work volumes, this could support domestic demand and a recovery in expectations for Chinese assets.

Weekly economic activity tracking: In the fifth week of September, food prices declined overall, with the Ministry of Agriculture's basket product wholesale price 200 index falling 1.1% week-on-week, of which fruit rose 1.5% week-on-week, while pork and vegetable prices fell 0.1% and 4.0% week-on-week respectively. Bulk commodity prices continued to fall, with the Nanhua Industrial Products Index down 1.0% week-on-week and up 13.5% year-on-year, among which silver, coking coal, live hogs, and wood pulp posted relatively large week-on-week declines. Affected by the misalignment of the Mid-Autumn holiday, foot traffic at urban commercial districts rose 16.3% year-on-year, with growth turning positive from negative. Durable goods consumption weakened, with retail sales of four major categories of home appliances down 17.6% year-on-year on a 4WMA basis and passenger vehicle retail sales down 29.3% year-on-year on a 4WMA basis, with both declines widening. Property sales were generally weak, with commercial housing transaction area in sample cities down 18.9% year-on-year for the week and second-hand home transaction area in sample cities also down 18.9% year-on-year, with both declines widening. On physical work volumes for construction investment, cement shipments fell 15.4% year-on-year on a 4WMA basis and concrete deliveries fell 9.3% year-on-year on a 4WMA basis, with declines continuing to narrow. Direct cement supply for infrastructure fell 4.8% year-on-year on a 4WMA basis, with the decline widening slightly. Export activity continued to improve, with port container throughput up 10.4% year-on-year on a 4WMA basis, with growth accelerating. On production activity, railway freight volume rose 2.2% year-on-year on a 4WMA basis, with growth accelerating somewhat.

Property market prosperity tracking: The CICC real estate prosperity index fell back somewhat (94.0 vs. 94.6 the previous week), of which the sales index (89.9 vs. 90.1 the previous week) declined slightly, the supply index (97.1 vs. 97.1 the previous week) was basically flat, and the financing index (95.1 vs. 96.5 the previous week) declined. From the demand side, new home sales year-on-year weakened marginally, and the year-on-year decline in second-hand home sales widened. On new homes, from September 26 to October 2, the year-on-year decline in new commercial residential sales area in 30 cities widened (-24.6% vs. -6.3% the previous week), of which the year-on-year decline in first-tier cities widened slightly (-3.7% vs. -2.6% the previous week), second-tier cities turned negative from positive (-30.2% vs. 1.4% the previous week), and the year-on-year decline in third-tier cities widened (-40.7% vs. -27.5% the previous week). On second-hand homes, from September 26 to October 2, the year-on-year decline in second-hand home sales area in 15 sample cities widened somewhat (-18.7% vs. -3.8% the previous week). From the supply side, land market transaction scale remained sluggish. On transactions, from September 21 to September 27, the year-on-year decline in planned gross floor area transacted for residential land in 300 cities widened (-60.2% vs. -56.9% the previous week). On heat, from September 21 to September 27, the average land premium rate in 300 cities rebounded somewhat (5.6% vs. 4.5% the previous week). By city tier, the average land premium rate was 5.9% in first-tier cities, 4.3% in second-tier cities, and 6.9% in third- and fourth-tier cities. This week, 170 land parcels were launched (vs. 181 the previous week), and the auction failure rate was basically flat (0.6% vs. 0.6% the previous week). From the financing side, net domestic credit bond financing for real estate turned negative from positive. From September 28 to October 4, net domestic credit bond financing for developers was -3.03 billion yuan (vs. 8.21 billion yuan the previous week).