China Merchants Securities has released a research report indicating that the recent flurry of policies aimed at curbing "involution," or excessive competition, warrants close attention to developments in the automotive sector. The report suggests these measures will drive a redistribution of cash flow between vehicle manufacturers and parts suppliers, with component makers standing to benefit more directly.
Additionally, on September 1st, the "Guidelines for Overseas Competitive Behavior and Compliance in the Automotive Industry" were issued, marking the first time that anti-involution requirements have been extended to overseas pricing and marketing competition within the sector.
On the international front, a review of US midterm elections since 1970 shows that global risk assets tend to underperform in the three to six months leading up to the vote. However, winning rates and average returns typically improve once October arrives, with further strengthening in the three to six months following the election.
Key domestic policy areas are being highlighted by the brokerage. Regarding the automotive industry, September has seen a series of policies targeting excessive competition, with governance in the sector clearly stepping up. On September 7th, a notice on standardizing payment terms between automakers and suppliers was released, marking the first national-level document on account period management for a specific industry. The core of this policy upgrades the 60-day payment term from a corporate commitment and industry initiative to a national regulatory standard, while also closing loopholes that could circumvent the new rules. This will further promote the redistribution of cash flow between vehicle companies and parts suppliers, with the latter benefiting more directly.
In the banking and insurance sector, a significant capital replenishment plan has been announced. On September 6th, eight central state-owned financial enterprises collectively disclosed their capital supplementation plans, with a total capital increase of 360 billion yuan. This round of capital replenishment expands the scope of support, extending beyond the major state-owned banks to also cover insurance companies and policy-oriented financial institutions.
Regarding new policy-oriented financial instruments, these have officially entered the deployment phase. From September 1st to 2nd, the China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China all completed their first disbursements for 2026. According to incomplete statistics from public projects, the disclosed deployment amount has already reached at least 896 million yuan. The policy intensity of this round is stronger than in 2025, with key changes in three areas: scale, funding sources, and investment direction. First, the scale has been increased from 500 billion yuan to 800 billion yuan, significantly expanding policy support. Second, the funding side has added PSL support, while providing a central government interest subsidy of 1.5 percentage points annually, lasting up to two years, for eligible small, medium, and micro private enterprises using these funds. This strengthens fiscal-monetary policy coordination. Last year, the three policy banks took about a month to complete the full 500 billion yuan deployment after establishing their policy-oriented financial tool companies. This year, the first batch of funds has already landed in early September, nearly a month earlier than the late September 2025 start. Given the larger 800 billion yuan scale this year, the deployment is expected to be completed within two months.
Several tax policies have also been released. Last week, the Ministry of Finance and the State Administration of Taxation issued three policies concerning VAT and personal income tax. Of particular note are the announcement on individual income tax for foreign individuals' dividend income and the measures for domestic entities to withhold VAT on payments to individuals for professional services. The former cancels the special tax exemption for foreign individuals' dividend income, restoring the domestic rate from an effective 0% to 20%. The latter raises tax compliance requirements for enterprises procuring professional services from individuals. Industries likely to be most affected include software and internet, advertising and design, consulting, film and television production, cultural media, and education and training.
Overseas, the review of US midterm elections since 1970 indicates that global risk assets tend to perform weakly in the three to six months before the vote. After October, winning rates and average returns generally improve, with further gains in the three to six months following the election. US equities show the most stable pattern, with the Nasdaq, S&P 500, and Russell 2000 generally underperforming in the three to six months prior, posting average returns of -3%, 0%, and -4%, respectively, in the six months before. In the month leading up to the election, typically October, these three indices strengthen noticeably, with winning probabilities rising to 64%, 73%, and 75%, and average returns reaching 5%, 4%, and 4%, respectively. By sector, US healthcare tends to outperform in the earlier stages before midterms, but as the election nears, the market shifts from defensive to offensive positioning, with IT, financials, and industrials improving. IT stands out most, with average returns of 10% and 15% in the three and six months following the election. In commodities, energy tends to underperform before midterms, primarily because controlling oil prices and easing inflation are usually key policy goals for the incumbent party. Precious metals tend to outperform, driven by heightened political and policy uncertainty ahead of the vote, which boosts safe-haven demand.
Risks to consider include an incomplete understanding of policies, and domestic and international policy and economic data coming in below expectations.