Next Week in China: 2-6 June 2025

Major Data Releases:

• 2 June: Hong Kong to report April retail sales data
• 3 June: Hong Kong to report Q1 statistics on vessels, port cargo, and container shipments
• 3 June: Caixin to report China’s Manufacturing Purchasing Managers’ Index (PMI) for May
• 5 June: Caixin to report China’s May Services PMI
• 5 June: Taiwan to report May inflation data
• 5 June: Taiwan to report May Producer Price Index (PPI)
• 6 June: Macau to report February-April residential property price index
• 7 June: China to report May foreign exchange reserve level

Next week, only three major data releases are scheduled for mainland China: two Caixin PMI reports and one macroeconomic report. Financial markets will be closed on Monday, a public holiday in China. However, the Hong Kong market will be open that day.

For the Caixin PMI, we expect a slight rebound in the index for May, similar to the trend we expect for the Chinese government’s official PMI. Since 2014, the annual growth rate of China’s imports has demonstrated a significant correlation with the manufacturing PMI. Compared to the official PMI, the Caixin PMI places greater emphasis on surveying small and medium-sized enterprises and is therefore more sensitive to market changes. Given the 90-day reciprocal tariff exemption period, the Caixin PMI may experience a greater rebound than the official PMI figure. However, China’s imports are expected to remain weak once the exemption period ends. Future import volumes will likely depend on the pace of state policies supporting domestic demand. If large-scale support measures are introduced to offset trade frictions, imports may rebound accordingly.

As the core driver of future demand, consumption is expected to shift from a pro-cyclical variable to a counter-cyclical one. Although policies have clearly emphasized the need to “vigorously boost consumption” and have positioned it as the core of future demand-side initiatives, historically, stimulus measures have mainly focused on real estate and infrastructure. Against the backdrop of structural transformation, we believe that targeting consumption in policy support will require a period of consensus-building, so we anticipate that the consumption boost will be gradual. Compared to the high investment concentration and rapid multiplier effect of real estate and infrastructure interventions in previous cycles, a consumption stimulus is characterized by longer value chains, slower results, and a reliance on the recovery of consumer confidence. This means that policy formulation and implementation will require stronger coordination and greater precision for the stimulus to be effective.

From a policy perspective, most efforts have still focused on temporary promotions, such as car purchase subsidies and home appliance trade-in programs, or holiday-driven consumption. A systematic and stable policy framework to scale up long-term consumption has yet to be established. At the central government level, there is still a lack of a regular mechanism for policy delivery, similar to the special bonds used for infrastructure. In 2024, total retail sales of consumer goods grew by 3.5 per cent, still significantly below the level in 2019. Meanwhile, the marginal propensity to consume for Chinese residents remains low. According to central bank data, household deposits increased by RMB 14.3 trillion (USD 1.98 trillion) in 2024. Although lower than 2023, this is still at a historically high level, indicating that households still prefer saving and that consumer confidence is still in the process of recovering. It is expected that short-term policies will remain focused on targeted sectoral support, while in the medium- to long-term, stronger institutional support and macroeconomic policy restructuring will be needed.

Chinese equities declined from the previous week. As of Thursday, 29 May, the MSCI China Index had decreased by 0.88 per cent from last Friday’s close, while the Shanghai Composite Index rose by 0.45 per cent. The Shenzhen Component Index slipped by 0.05 per cent and the ChiNext Index declined by 0.44 per cent. From a size perspective, small- and mid-cap stocks outperformed large-cap stocks, contrary to the previous week. From a style perspective, value stocks slightly outperformed growth stocks.

Looking ahead, the market may continue to fluctuate in the near term. However, downside risks appear limited for two main reasons: first, the monetary easing in May was implemented promptly and comprehensively, providing direct support to stabilize the local capital market; second, stabilization funds are effectively propping up the market while also managing public sentiment. At present, the marginal changes in both domestic and international economic and industrial factors are still insufficient to support a market breakout to the upside. However, long-term structural opportunities in the market are still worth looking forward to.

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.