Next Week in China: 12-16 May 2025

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Major Data Releases:

13 May: Hong Kong to report March external trade data
15 May: China to report April total social electricity consumption
15 May: China to report April scale of operations and interest rate of medium-term lending facility (MLF)
16 May: Hong Kong to report Q1 GDP revised figures
16 May: Macau to report Q1 GDP figures

By convention, the Chinese government is scheduled to release data on total retail sales, fixed asset investment, and related indices next week. However, due to last week’s long holiday, these major data releases have been postponed to the week after next. Instead, mainland China will release data on total social electricity consumption, as well as the scale and interest rate of the MLF.

In the first week after the holiday, RMB 1.62 trillion (USD 224 billion) worth of reverse repurchase funds will mature in one go. In addition, RMB 900 billion (USD 125 billion) of outright reverse repos and RMB 125 billion (USD 17 billion) of MLF borrowings will also mature in May, leading to a peak period of liquidity withdrawal in the market. For comparison, loans that matured during the same period in previous years were at RMB 60 billion (USD 8.3 billion) each for 2021 and 2022, RMB 727 billion (USD 101 billion) in 2023, and RMB 450 billion (USD 62 billion) in 2024 – all significantly lower than loans due this year.

However, on 7 May, China’s central bank introduced a package of monetary policy adjustments. One component is a 0.5 percentage point cut in the reserve requirement ratio (RRR) for large and medium-sized banks, which will unlock RMB 1 trillion (USD 138 billion) in long-term liquidity. Another measure entails improving the reserve requirement system for auto finance companies and financial leasing companies by temporarily lowering their RRR from the current 5 per cent to 0 per cent. In addition, the interest rate on 7-day open market reverse repo operations will be reduced from 1.50 per cent to 1.40 per cent starting 8 May. These adjustments are expected to pull down market borrowing rates, and thus, the loan prime rate (LPR) is also expected to decrease by 0.1 percentage points.

Currently, the main issue with market liquidity is structural. To maintain ample liquidity, the People’s Bank of China is conducting daily short-term liquidity operations, and the scale of these operations is relatively large. The latest RRR cut can help adjust the structure of market liquidity, appropriately reduce the need for rolling renewals of short-term liquidity tools, increase the supply of medium- and long-term money supply, lower banks’ funding costs, enhance the stability of bank liabilities, weaken banks’ incentives to attract deposits at high interest rates, and limit the ability of non-bank institutions to engage in arbitrage using idle funds – all to support the domestic economy amid global trade disruptions.

In terms of equities, major stock indices are up week-on-week. As of Thursday, 8 May, the MSCI China Index had increased by 0.43 per cent for the week, the Shanghai Composite Index rose by 2.23 per cent, the Shenzhen Component Index by 3.01 per cent, and the ChiNext Index by 4.18 per cent. During this period, small-cap stocks outperformed mid- and large-cap stocks. From a style perspective, value stocks slightly outperformed growth stocks. Looking ahead, as the market enters the earnings vacuum period in May, concerns about small-cap growth stocks are gradually subsiding. Coupled with a recent increase in risk appetite driven by upcoming tariff negotiations with the US, the market may experience a short-term, momentum-driven rebound led by the technology sector. However, in the medium term, the fundamental downward pressure from subsequent tariffs may gradually emerge in the second and third quarters, and the market may face continued heightened volatility.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.