Next Week in China: 17-21 February 2025

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Major Data Releases:

17 February: Hong Kong to report December 2024 volume and price data of external merchandise trade
17 February: Taiwan to report December 2024 employment statistics
17 February: China to report February Medium-Term Lending Facility (MLF) interest rate and scale of operations
18 February: Hong Kong to report 2024 yearend population
18 February: Hong Kong to report November 2024-January 2025 unemployment and underemployment figures
19 February: China to report January price indices of commercial residential buildings
20 February: China to report February 1-year and 5-year loan prime rates (LPR)

Next week, there are few data releases scheduled for mainland China, and these include the monthly MLF and LPR data.

Regarding the MLF, we anticipate that the central bank will continue to conduct lending operations with reduced volumes and to keep the rate unchanged for February. In January, the People’s Bank of China lent out RMB 200 billion (USD 27.4 billion) to banks under a 1-year term. Bids ranged from 1.80 to 2.20 per cent but the winning bid rate stood unchanged at 2.00 per cent. Notably, this marks the sixth consecutive month that the central bank has slashed the volume of MLF operations. The bid rate was reduced by 30 basis points to 2.0 per cent in September 2024 and has held for four consecutive months. The continued reduction in MLF operations aligns with market expectations. On 22 July 2024, the central bank announced that the 7-day reverse repurchase operations in the open market would adopt a fixed rate and quantity bidding. The link between market rates and the 7-day reverse repo rate has been strengthened, significantly diminishing the policy-setting nature of the MLF rate.

For the LPR – the benchmark for bank loans – we expect the 1-year and 5-year rates to remain unchanged in February at 3.1 per cent and 3.6 per cent, respectively. We maintain our view that there is room for rate cuts in the first half of 2025. However, due to the combined effects of tighter interbank liquidity and exchange rate pressure, the chances for a rate cut in the near term are slim. The 7-day reverse repo rate anchor remains stable, and banks continue to face pressure on their net interest margins, staying below the 1.8 per cent warning level. With the overlap of the January tax period and cash withdrawals for the Spring Festival, the interbank liquidity market has tightened significantly, thus raising borrowing costs. In this environment, commercial banks will not push the LPR lower. However, the recent pressure on the USD-RMB rate suggests that keeping the LPR unchanged might be the strategic choice to stabilize the exchange rate while maintaining a loose monetary policy.

For stocks, as of Thursday, 13 February, the MSCI China Index rose by 2.95 per cent for the week. The Shanghai Composite Index increased by 0.87 per cent versus last week’s close, the Shenzhen Component Index climbed by 0.48 per cent, and the ChiNext Index went up by a narrow 0.08 per cent. During this period, small and mid-cap stocks outperformed large-cap stocks. From a style perspective, value stocks slightly outpaced growth stocks. Looking ahead, DeepSeek’s development has captured the attention of global institutions. This focus is beneficial for the revaluation of Chinese tech companies and has since pushed tech stocks into the bull market.

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.