China Financials: Doubling down in anti-involution and de-leveraging

China policy makers are doubling down on the harder but more sustainable path to address over-capacity risks in China rather than via the path of re-leveraging up to boost short-term demand. Two recent policies have further increased our confidence of lower financial risk over the long run. Stricter State Council policy to enforce timely payments to SMEs and new NDRC policy to prevent irrational price competition should help reduce irrational competition and financial risks. Specifically, the new State Council policy has set more specific standards on timing of product and service delivery, further shortened maximum payable period, and require (rather than encourage in previous policies) SOEs to pay SMEs by cash rather than payable bills. Separately, NDRC and SAMR released standards of cost accounting, a key parameter when judging if any corporates are engaged in irrational pricing setting and competition. New policies show the dedication to a more sustained path to lower over-capacity