The PBoC appears increasingly uncomfortable with the rapid decline in the Chinese government bond yields. While the PBoC will succeed in temporarily curbing investors’ enthusiasm for bonds, the central bank will be unwilling to raise interest rates and unable to intervene in the bond market in any meaningful and lasting way.
The EU's import tariff increases on Chinese EVs are expected to have a minimal impact on China's overall exports. We anticipate that most Western-brand EV shipments from China will be less affected by the EU import tax hike. Beijing will likely pursue continued negotiations with the EU rather than resort to harsh retaliatory measures.
The large buildup in Chinese households’ savings deposits is unlikely to fuel consumption. Poor outlooks on labor market conditions, income, and households’ unwillingness to borrow will hinder consumption through the rest of 2024.
The RMB 500 billion program is small, as it is equivalent to only 4% of property developers' total funding from the past 12 months. This will preclude a recovery in property construction this year. Corporate profits will determine the path of China’s share prices on a cyclical time horizon. Deflation in China will persist for now, which will depress corporate profits even if volumes grow modestly.
A reality check on credit data and announced property sector support measures indicates that the recent surge in Chinese share prices is unjustified based on the country's economic fundamentals.
China’s economy is cruising at a very low altitude. The odds are that China’s equity rebound is running out of time. The RMB will continue to depreciate versus the US dollar in the coming months, albeit the pace may be modest.
