Beijing’s supply-side push faces steeper hurdles than in 2016. With limited demand support and tighter constraints on cutting capacity, today’s reforms are unlikely to pack the same punch.
This report analyzes China’s persistent deflation, which is rooted in supply-side forces. Consumption support will be slow and incremental, keeping deflationary pressures elevated for the next 6–12 months.
The London Sino-US trade talks offered hope of de-escalation, but Chinese equities remain under pressure from deflationary headwinds and lack a clear macro catalyst to trend higher.
Chinese tourism will continue growing, but investors should be mindful not to overpay for Chinese tourism stocks by extrapolating their past double-digit revenue growth into the future.
Despite marginal de-escalation in tariffs between the US and China, a sustainable trade agreement remains elusive. In the meantime, economic damage continues to mount, and Chinese equities have yet to fully price in the tariff-induced growth deterioration.
While the United States and China may aim for full decoupling, all they can afford now is some form of trade skirmishes. Increasing economic pressure will eventually force both Washington and Beijing to pursue more proactive negotiations. Until then, internal economic and financial strains are likely necessary to break the stalemate and resume dialogue between the two nations.
Data released this Monday suggests that while China’s housing market is no longer worsening, the secular adjustment remains ongoing. Although aggregate housing demand may be stabilizing at a low level, supply will continue to significantly outpace demand, indicating that home price deflation will persist. Additionally, property developers’ poor financing will hinder new project initiations, leading to a further decline in housing starts over the next six to 12 months.