Next Week in China: 20-24 January 2025

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Major Data Releases:

20 January: China to report January 1-year and 5-year loan prime rates (LPR)
20 January: Hong Kong to report Q4 2024 employment statistics
21 January: Hong Kong to report December consumer price index (CPI)
24 January: Macau to report December CPI

Next week will be relatively quiet regarding major economic data releases from China and its administrative regions. In the US, Donald Trump will assume the presidency on 20 January. His future actions should be closely monitored, particularly policies that will affect trade relations with China.

Regarding LPRs, we anticipate that the central bank’s commitment to a “more proactive fiscal policy and moderately loose monetary policy” will potentially lead to a decline in both the LPR and the medium-term lending facility (MLF) rates in 2025. However, a reduction is not expected at this time. Access to funding has been relatively tight since the start of the year and rates have been slightly constrained, possibly influenced by elevated interest rates and a weaker exchange rate. Historically, the funding environment tends to tighten during the first half of January due to various factors such as credit issuance, cash withdrawals for the Lunar New Year, and the tax season, and 2025 is no exception. While bond market rates currently remain low, a reserve requirement ratio cut is likely before the Chinese New Year to address the significant liquidity gap. Meanwhile, the likelihood of an interest rate cut is low. If the funding crunch does not ease significantly, only short-term borrowing rates are likely to adjust downward instead of medium- to long-term rates.

For equities, as of Thursday, 16 January, the MSCI China Index increased by 2.79 per cent from the previous week. The Shanghai Composite Index rose by 2.13 per cent, the Shenzhen Component Index climbed by 3.12 per cent, while the ChiNext Index picked up by 3.85 per cent over the past five trading days. Small to mid-cap stocks continued to outperform large-cap stocks over the past week, and from a style perspective, both growth and value stocks performed similarly.

Trump will officially be US president on Monday, and his protectionist measures have raised concerns about their impact on exports. For Mainland China, the central bank has repeatedly emphasized taking an “opportunistic” approach for monetary policy, thus, any unexpected external shock may trigger a pre-emptive lowering of reserve requirements or interest rates. On the fiscal front, we await the announcement of details of the higher budget deficit for 2025 from the National People’s Congress in March to support economic recovery.

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.