According to the Zhitong Finance APP, Debang Securities has released a research report stating that the overall tone of next year's economic work, "seeking progress while maintaining stability," has been determined, and the direction of economic development for next year is clear. From the perspective of policy focus, attention should be paid to three main lines of chemical investment at present: (1) The new cycle of the chemical industry has begun, and the trend of supply and demand improvement has been reconfirmed. (2) Focus on regional development strategies and pay attention to the opportunities of the Western Development. (3) Technological innovation leads development and embraces new productive forces in the chemical industry.

Event: Recently, the Central Political Bureau meeting and the Central Economic Work Conference were held successively, focusing on economic work for 2025, steering the direction for high-quality development of the Chinese economy.

Main points of Debang Securities are as follows:

Main Line 1: The new cycle of the chemical industry has begun, and the trend of supply and demand improvement has been reconfirmed.

① Demand Side: Expanding domestic demand and stabilizing the real estate market are expected to form a boosting force for chemical product demand.

The macro-level statements from the December Political Bureau meeting have advanced further compared to September, with monetary policy shifting from a steady approach maintained for 14 years to a moderately loose stance, and fiscal policy becoming more proactive. For the first time, "extraordinary counter-cyclical adjustments" were proposed, fully demonstrating the central government's determination to promote economic recovery. From the direction of policy efforts, the meeting's policy statements will place expanding domestic demand ahead of technological innovation development and clearly state the need to vigorously boost consumption while stabilizing the real estate and stock markets, preventing and resolving risks in key areas and external shocks, and continuously injecting confidence into the market.

Considering the previous policy effects, the strength of real estate policies has been continuously strengthened since mid-2023, and there are already signs of stabilization and recovery in the housing market. In the first three quarters of 2024, the sales area and sales volume of newly built commercial housing nationwide decreased by 17.1% and 22.7% year-on-year, respectively, narrowing by 1.9 and 2.3 percentage points compared to the first half of the year; on the consumption side, policies such as trade-ins have continued to exert force, with significant growth in the consumption markets for home appliances, furniture, electronic devices, and automobiles in Q3. Overall macro-level consumption expenditure is expected to significantly exceed the 70 trillion yuan level of 2023. Considering that macro policies will be more proactive in 2025, and with the stabilization and recovery of the real estate market and the stimulation of home appliance and automobile consumption, the demand for related chemical products is expected to continue to grow.

② Supply Side: Rectifying "involution-style" vicious competition helps optimize the supply-side structure.

Following the July Political Bureau meeting's proposal to strengthen industry self-discipline and prevent "involution-style" vicious competition, this Central Economic Work Conference further emphasized the need to comprehensively rectify "involution-style" vicious competition and standardize the behavior of local governments and enterprises. Considering that the chemical industry is a capital-intensive sector, project approvals need to go through numerous stages, including project establishment, environmental assessment, and safety assessment, there may be greater operational space and better implementation effects in preventing involution on the supply side.

Combining with the current chemical expansion cycle that began in 2021, which has entered its final stage, capital expenditure, ongoing projects, and fixed asset growth rates in the chemical industry have all shown downward turning points in 2021, 2022, and 2023, with capital expenditure being negative for four consecutive quarters year-on-year. Under the expectation of national-level constraints to prevent involution and vicious competition, the chemical industry may welcome a new round of supply-side reform, with domestic supply expected to improve significantly on the margin. The current direction for improvement in the chemical industry supply and demand is clear. After historical cycle verification, the quantity-increasing blue-chip stocks with performance resilience are expected to be the first to rebound. Focus on: BAOFENG ENERGY, Wanhua Chemical, Hualu Hengsheng, Satellite Chemical.

Main Line Two: Focus on regional development strategies and pay attention to opportunities in the Western Development.

The report of the 20th National Congress of the Communist Party of China proposed to promote coordinated regional development. Since 2023, the Central Political Bureau has reviewed several important documents related to regional economic development. This Political Bureau meeting once again clarified the development direction of regional strategies, pointing out the need to strengthen the implementation of regional strategies and enhance regional development vitality. Future policy focuses may first lean towards regions with new positioning. The western region plays a crucial role in the overall reform, development, and stability of the country. The Western Development is a major strategic decision made by the Party Central Committee and is expected to receive further policy support in the future.

Specifically, the west serves as an important hub connecting Central Asia and West Asia in the "Belt and Road" initiative, and it has abundant energy reserves. The development potential of coal, water conservancy, and other resources is immense, bearing the responsibility for China's energy security. In Xinjiang, it is expected that coal production will be batch-produced during the "14th Five-Year Plan" period, making Xinjiang a strategic resource guarantee base for the country; at the same time, policies are vigorously promoting the development of coal chemical industry in Xinjiang, with an estimated investment of 939.571 billion yuan in key areas such as coal, electricity, coal chemical, oil and gas production and processing, and new energy development in Xinjiang by 2028. In Tibet, the Yarlung Tsangpo River is expected to have over 1 trillion yuan in water conservancy projects included in the 14th Five-Year Plan and the 2035 vision outline of the Tibet Autonomous Region, with the installed capacity of the Motuo Hydropower Station reaching 60 million kilowatts and an average annual power generation of 300 billion kilowatt-hours, equivalent to "three Three Gorges."

Benefiting from the infrastructure and water conservancy demand of the Western Development, focus on: ① Civil explosives: Yipuli, Jiangnan Chemical, Guangdong Hongda, Yahua Group, Xuefeng Technology, Kailong Co.; ② Chemical engineering companies: SUNWAY, China National Chemical, Donghua Technology, Sinopec Refining Engineering; ③ Resource-based enterprises in Xinjiang: Guanghui Energy, BAOFENG ENERGY, Hubei Yihua, Tianfu Energy, Xinjiang Tianye.

Main Line Three: Technological innovation leads development, embracing new chemical productivity.

New productivity, as an inherent requirement and important focus for promoting high-quality development, remains one of the important directions for future policies. The Central Economic Work Conference in December reiterated the need to lead the development of new productivity through technological innovation. Compared to 2023, which mentioned many sub-sectors such as artificial intelligence, biomanufacturing, commercial aerospace, low-altitude economy, quantum, and life sciences, this meeting only highlighted "artificial intelligence+", reflecting the government's emphasis on the development of related industries. As the core force of cutting-edge technology, the government may continue to increase financial subsidies for related research projects in the coming year, specifically supporting key technology research and development, talent training, and infrastructure construction, leading the industry into a period of rapid innovation and subsequently boosting demand for upstream chemical-related materials.

Focus on: ① AI materials: Shengquan Group, Dongcai Technology, Lianrui New Materials; ② PAEK materials: Zhongyan Co., Kaisheng New Materials, Xinhan New Materials, Water Co. Additionally, against the backdrop of gradually advancing dual carbon goals, green productivity plays an important role in promoting the development of new productivity The global carbon reduction situation remains severe. As the second-largest source of greenhouse gas emissions in the transportation sector, the necessity and urgency of carbon reduction in the aviation industry are increasingly prominent. There is optimism about the application of sustainable fuels such as SAF in aviation emissions reduction, with a focus on: ③ SAF: Jiaao Environmental Protection, Haixin Energy Technology, Pengyao Environmental Protection, Zhuoyue New Energy, Langkun Environment.

Risk Warning: Policies falling short of expectations, downstream demand falling short of expectations, project progress falling short of expectations, macroeconomic downturn risks