After July, high-frequency indicators release the rebound signal of infrastructure investment, and the cross-cycle adjustment is expected to accelerate

According to the news, the average growth rate of industrial added value in July was 5.6% in two years, down 0.9 percentage points from June and the lowest since September last year. From the perspective of the output of major products, the average growth rate of natural gas, steel, cement, integrated circuits, smart phones, and SUVs related to "missing cores" in the two years has dropped sharply compared with June. Of the 17 industrial sectors in which value added data have been published, only two have a two-year average growth rate that has risen from the previous month, and the deceleration of industrial production is universal.

From the perspective of the cumulative growth rate of infrastructure investment, the national infrastructure investment (excluding electricity) in January-July 2021 increased by 4.60% year-on-year, compared with the compound growth rate of 1.76% in the two years of 2019, according to the full-caliber data, infrastructure investment in January-July rose by 4.19% year-on-year, in line with the growth rate of 2.68% year-on-year in 2019, and the cumulative growth rate of infrastructure investment slowly declined.

From the perspective of specific sub-items, fiscal expenditure is more inclined to social security, education, health education and other areas of people's livelihood, accounting for nearly 40% in the first seven months, while the expenditure on urban and rural community affairs, transportation and other infrastructure projects accounted for about 22% in the first seven months.

Where to look in the second half of the year?

Previously, the National Standing Committee proposed to strengthen cross-cycle adjustment, keep the economy operating in a reasonable range, and make good use of local government special debt to drive the expansion of effective investment. The 730 Politburo meeting called for "proactive fiscal policy to improve policy efficiency, reasonably grasp the progress of budgetary investment and local government bond issuance, and promote the formation of a physical workload at the end of this year and early next year."

The National Development and Reform Commission also said on August 17 that the next step will be to guide and urge all localities to prepare for special bond projects in the second half of this year and the first half of next year with high quality, so as to ensure that special bonds can be put into project construction in a timely manner after issuance, and the physical workload can be formed as soon as possible.

At the capital level, as of July 31, 2021, the new special bonds issued this year accounted for less than 40% of the new special bonds in the whole year, far lower than the progress of special bond issuance in 2019 and 2020. It is expected that the amount of special bonds post-positioned this year will be issued within the year, which means that the issuance of large-scale special bonds will continue to advance in the second half of the year, which will effectively promote the continuous rebound of infrastructure investment.

In terms of high-frequency data, high-frequency indicators have continuously released rebound signals for infrastructure investment after July. Cement prices, oil asphalt operating rate, all-steel tire operating rate, large and small rebar price spreads and other high-frequency indicators related to infrastructure bottomed out, showing ultra-seasonal performance.

The direction of new infrastructure and manufacturing needs to be accelerated

Economic data in July showed that the downward pressure on economic growth exceeded expectations, and the economic data in August was likely to be suppressed by the epidemic. Looking forward to the second half of the year, in order to ensure the need to stabilize growth in the second half of the year and next year, fiscal intensification has become a mandatory option.

Huatai Securities said that from the fourth quarter of this year to the first half of next year, exports and real estate may show more substantial downward pressure, and infrastructure as a counter-cyclical adjustment tool, focusing on responding to cyclical pressures rather than short-term disturbances. In terms of policy expression, "strengthening" > "doing a good job" of cross-cycle adjustment, but it has not yet reached the urgency of "counter-cyclical adjustment". In the third quarter of this year, the central government still has a certain tolerance for economic pressure and moderate pre-adjustment, and in the fourth quarter, it is necessary to do moderate smoothing and support, and next year it will rely on infrastructure to play a role in stabilizing the economy.

Industrial Securities said that the amount of infrastructure transactions in 2020H2 and early 2021 will accelerate growth, increasing the reserve of infrastructure projects in 2021. The improvement of special bond issuance in the second half of the year and the curbing of the price increase of commodities such as raw materials are expected to promote the release of new infrastructure projects in the second half of the year. At the same time, in 2021, as the opening year of the "14th Five-Year Plan", the enthusiasm for local government infrastructure project planning has not diminished, and the newly started projects are abundant, or they will continue to exert efforts in the second half of the year to accelerate the conversion into investment. However, the final landing still depends on the trend of the epidemic and the situation of funds.

In addition, taking into account the recent relevant policies for the "new infrastructure" and "for industrial mother machines, high-end chips, new materials, new energy vehicles and other key core technology research" and other manufacturing industry statements, the development of related industries is expected to accelerate.