- Latest data show a welcome rise in credit creation.
- Exports, tariff threat notwithstanding, are likely to do well in most of the world.
- News on EV, batteries, chips, and AI suggest innovation continues apace.
- Chinese stock markets have turned ebullient, accordingly.
- US pushback is inevitable, but China’s defensive playbook appears solid.
Related Insights
Commentary: China’s offset to property market distress
China’s economy remains under pressure from the property sector, which is beset with large unsold inventory, weak transaction volumes, struggles by some real estate developers to service their loans, and still-weak sentiments about the price outlook. Despite concerted monetary, fiscal, and regulatory measures to restructure and stabilise, we don’t expect the real estate sector to support growth in the near term. But news about industrial and tech developments, export performance, and market outturn suggest all is not lost in China. We see several constructive developments in the making that can potentially offset the property sector drag.
Debt-deflation risks need to be countered with large monetary cushion; the Chinese authorities appear to be providing that. Steady cuts in interest rates and liquidity injection have pushed down borrowing costs and helped narrow corporate spreads. Latest data show green-shoots in the corporate lending space, a prerequisite to a trough.
Export did well in 2024 (+5.9%yoy), hitting a record. The nation’s relentless investment in green transition, semiconductor manufacturing, and artificial intelligence is paying off, forming a high value-added industrial base for the future. These developments take time, but the new year has brought a plethora of welcome developments. From Chinese EV and battery manufacturers capturing headlines with ever widening product offerings and rising sales, to local DRAM producers becoming a material player in the global chip market, sentiment around innovation has improved. This was most startlingly portrayed by last month’s release of DeepSeek’s R1 Large Language Model, which sent shockwaves through the Western AI ecosystem.
China’s stock markets have turned ebullient. Hang Seng China Enterprises index is up 18% ytd in USD terms, while Shenzhen composite is up 7.4%. Most striking is the 69%ytd gain of Alibaba, the tech giant which five years ago stood at the pinnacle of China’s corporate hierarchy, and then went through a dramatic fall from grace due to regulatory actions. With Jack Ma appearing in public with President Xi recently, and the company announcing strides in several AI related initiatives, Alibaba is back.
With Trump 2.0 at the fore, along with an assortment of tariff measures, both realised and threatened, China will have its hands full externally, we are sure. Shoring up domestic demand, supporting home-grown industrial capabilities and innovation, and remaining open to business with the non-US world are China’s defensive options. We see all of them in play presently.
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