Next Week in China: 5-9 May 2025

Major Data Releases:

• 6 May: Caixin to report April Services Purchasing Managers’ Index for China
• 7 May: China to report April foreign exchange, gold reserves levels
• 9 May: China to report April M0, M1 and M2 money supply growth rates
• 9 May: China to report April trade balance
• 9 May: China to report April import and export performance
• 9 May: China to report April Total Social Financing (TSF) statistics
• 9 May: China to report April new renminbi loans
• 10 May: China to report April Consumer Price Index
• 10 May: China to report April Producer Price Index

Next week will be significant in terms of major data releases, with 10 economic reports expected for mainland China. Additionally, the markets in mainland China and Hong Kong will be closed until Monday, 5 May, for a long holiday to celebrate Labor Day (1 May) and Buddha’s Birthday.

The proactive nature of China’s fiscal policy is evident in its timing as adjustments came into force in the second quarter of 2025. As the impact of sky-high US tariffs become apparent, credit is expected to maintain strong support and TSF may exhibit a “high in the front, low in the back” trend as a result. Subsequent lending efforts will aim to balance ample total volume with structural optimization. For the household sector, credit will continue to favour consumption and business operations while in the corporate sector, small and micro enterprises will be prioritized for borrowing, along with technological innovation and green projects. This approach aligns with supportive fiscal and industrial policy combinations in the areas of consumption, technological innovation, and livelihood, and meant to address the potential increase in liquidity needs due to tariff pressures.

In March, credit issuance exceeded expectations, but the structure was driven primarily by short-term loans. The growth rate of RMB medium- and long-term loans was at 7 per cent, still a low level. Increase in short-term loans reflects businesses rushing to meet targets, and the recovery of real sector demand remains to be seen.

First, the main contributor to the increase in loans was short-term corporate borrowing. In March, corporate loans increased by RMB 500 billion (USD 68.8 billion) year-on-year, while bill financing decreased. However, end-of-quarter credit assessments may have led banks to continue providing liquidity loans to central and state-owned enterprises to boost figures. Medium- and long-term corporate loans were still affected by debt swaps to log a slower expansion from last year.

Second, growth in both short-term and medium- to long-term household loans accelerated, corresponding to rapid price cuts for consumer loans. Structurally, in March, new short-term and medium- to long-term household loans were at RMB 484.1 billion (USD 66.6 billion) and RMB 504.7 billion (USD 69.4 billion), respectively, a significant recovery from February. The increase in medium- to long-term household loans reflects a rebound in mortgage demand amid improved real estate sales, coupled with a reduction in early repayments, leading to higher mortgage growth. The increase in short-term corporate loans corresponds to banks competing on price for consumer loans. In March, low-rate consumer loans at 2.5-2.6 per cent appeared in the market but were later adjusted higher to no less than 3 per cent due to rising bad loans. This also indirectly reflects that banks’ strategy of trading price for volume is unsustainable and may also be affected by the relaxation of loan term policies for individual borrowers.

In the next stage, further reduction in real sector financing costs would require further policy rate cuts and an improvement in banks’ funding costs.

Chinese equities saw mixed movements versus the past week before the market went on holiday beginning Thursday, 1 May. The MSCI China Index had increased by 0.19 per cent for the week. Meanwhile, the Shanghai Composite Index and Shenzhen Component Index decreased by 0.49 and 0.17 per cent, respectively, while the ChiNext Index rose by 0.04 per cent. During this period, small-cap stocks slightly outperformed mid- and large-cap stocks. From a style perspective, value stocks outperformed growth stocks. Looking ahead, statements from the April Politburo meeting aimed at stabilizing the capital market, combined with a series of decisive market rescue measures from early to mid-April, have clarified the Chinese leadership’s strong determination to maintain market stability, positively influencing risk appetite towards the stock market.

In the short term, the market should focus on two changes. First, the expectation for reduced US tariffs is rising, but given the considerable arbitrariness of Trump’s policies since taking office, policy uncertainty persists. Second, the A-share earnings disclosure period is coming to an end, thus the market is entering another earnings vacuum period. Overall, the Politburo meeting’s emphasis on “bottom-line thinking” supports risk appetite, but tariff uncertainties remain. Attention should continue to be paid to the progress of China-US tariff negotiations, high-frequency data around Labor Day, the effectiveness of China’s countermeasures, and the specific development of various support programs.

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.