Doubling down in anti-involution and de - leveraging

Research evidence excerpt

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M

Idea

September 15, 2026 09:00 PM GMT

China Financials | Asia Pacific

Morgan Stanley Asia Limited+

Richard Xu, CFA

Equity Analyst

Doubling down in antiinvolution and de-leveraging

Beryl Yang

Research Associate

Chiyao Huang

Equity Analyst

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. More detailed monitoring and

enforcement system is also established with a focus on large corporates with higher

payables. This policy will help further contain the leverage of large corporates,

reduce SME credit risk via improving SME's cash flow and contain irrational capacity

expansion by large corporates. Separately, NDRC and SAMR released standards of

cost accounting, which is a key parameter when judging if any corporates are

engaged in irrational pricing setting and competition. Both new policies are key to

Rick Zhao

Equity Analyst

Chenqian Liu

Research Associate

China Financials

Asia Pacific

Industry View

Attractive

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effectively push forward anti-involution efforts despite already positive CPI and PPI.

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