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Welcome to Thoughts on the Market. I'm Laura Wang, Morgan Stanley's chief China Equity strategist. Today, a consequential shift in China's economic policy is set to reshape domestic markets and send ripples across the global economy. It's Thursday, October 2nd at 2pm in Hong Kong. If you are an investor, it's important to understand China's new approach to economic development. The government's policies to drive a recovery from an economic slump are changing the rules of competition, profitability and growth. This affects Chinese companies and in turn global supply chains and investment flows. Let's start with the term involution. What is it in China? Involution describes a cycle of excessive competition. Think companies fighting for market share by slashing prices, ramping up production and eroding profits, often to the point where nobody wins. The government's anti evolution campaign is a direct response to this problem. What factors prompt the launch of this anti evolution initiative? Since 2021, China has faced mounting deflationary pressures, falling prices, a housing market slump and a surge in manufacturing investment that led to overcapacity. The September 2024 policy pivot began to address these issues and in mid-2025 the government launched a more targeted anti evolution campaign. This phase focuses on reducing excessive competition and restoring pricing power through market based consolidation. As we assess the potential effectiveness of China's anti evolution policy, our base case projects China's return on equity to reach 13.3% by 2030, up from a cycle low of 10% in May 2024 and 11.6% by July 2025. In a bullish scenario, decisive reforms and demand side stimulus could push ROE as high as 16.3%. We also expect earnings growth to accelerate with our base case showing an annual earnings growth rate of 7.6% in 2025, rising to 11.1% by 2027. We forecast valuations to normalize towards 12 to 13 times forward price to earnings in line with emerging market peers. But this could re rate higher if reforms succeed. In terms of investment opportunities, we believe the EV battery industry will benefit the most from the Chinese government's anti evolution efforts. It's got strong policy support, cutting edge technology and a market that's consolidating fast, meaning the days of low quality and excess capacity are fading. We are seeing a shift towards long term sustainable growth. Steel and cement are industries where the state has a strong hand and capacity controls are well established. These factors help stabilize the market and open the door for steady gains. Finally, airlines, while the industry has faced persistent losses, there isn't an oversupply of seats, and regulatory coordination is strong. With the right reforms, airlines could be poised for significant turnaround. The sectors best positioned to benefit from China's anti Evolution strategy are more domestically oriented. But this policy is bound to have global implications, and ripples will likely extend to global supply chains, especially in materials, chemicals and autos. Looking ahead, the pace and success of Anti Evolution will depend on further structural reforms, demand side support and the ability to digest industrial credit risks gradually. The upcoming 15th Five Year Plan could bring more clarity on tax, social welfare and local government incentives. So what should investors be paying attention to? China's Anti Evolution campaign is more than a policy tweak. It's a recalibration of how the country balances growth, innovation and sustainability. The key is to track sector level reforms, watch for signs of consolidation and focus on companies with strong fundamentals and policy tailwinds. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.