This week, domestic policy discussions should focus on fiscal and tax system reforms. The first area is the consumption tax, where we have identified potential reform directions. For investment opportunities, sectors like duty-free and dual-carbon initiatives are worth watching. The second area is the implementation of increased state capital revenue collection ratios. We believe that as collection ratios rise for various groups, there may be pressure to increase dividend payout rates for their listed or non-listed subsidiaries. Investors should monitor potential rallies in high-dividend state-owned enterprises.
Domestic Policy Focus 1: Outlook for Consumption Tax Reform. Recent market discussions have increased around consumption tax reforms.
Based on our research, comparing budget report arrangements for fiscal and tax system reforms in recent years, this year indeed shows stronger impetus for consumption tax reforms. Changes may primarily involve expanding the tax base, adjusting tax rates, and shifting the collection point downstream. Integrating views from various experts, we have identified consumer goods categories potentially affected under these three reform paths. Regarding market impact, we believe that amid the central economic work conference's emphasis on macro policy consistency and expectation management, the advancement of consumption tax reforms will carefully consider effects on market expectations to avoid composite fallacies.
Therefore, the implementation节奏 might occur in multiple phases, starting with categories where impacts are relatively controllable but negative externalities are significant. For example, when expanding the tax base, priority might be given to luxury leather goods and apparel, which could indirectly benefit duty-free sectors. Regarding rate adjustments, priority might be given to increasing taxes on environmentally harmful consumer goods, indirectly benefiting new energy power generation, environmental protection, and other dual-carbon related concepts. Measures like sugar taxes may be implemented at appropriate times, considering expectation management.
Domestic Policy Focus 2: Increased State Capital Revenue Collection Ratios. Recently, the Ministry of Finance disclosed the 2026 central fiscal budget, including details on central state-owned capital operating budgets, which for the first time revealed the profit collection ratios for central state-owned wholly-owned enterprises (non-financial). Compared to previously published data, there are significant adjustments, with a notable increase in the proportion of profits turned over to the treasury. This is the first adjustment since 2014. Specifically, collection ratios across different tiers have increased by 10-15 percentage points. We recommend subsequent focus on potential rallies related to high-dividend state-owned enterprises. Against the backdrop of increased revenue collection ratios for various groups, there may be impetus to raise dividend payout rates for their listed or non-listed subsidiaries. Our analysis of central SOE groups under SASAC and their corresponding listed entities' dividend situations, compared to the new required collection ratios, shows that approximately 45 listed central SOEs had 2024 dividend payout rates somewhat lower than the increased ratios now required for their parent groups. Sector-wise, these SOEs primarily belong to groups in power, transportation, defense, and similar industries.
Risk warnings: Incomplete policy understanding, economic data and policies falling short of expectations, tightening of overseas policies.