Next Week in China: 7-11 July 2025

Major Data Releases:          

• 7 July: China to report end-June level of foreign exchange reserves
• 9 July: China to report June Consumer Price Index (CPI)
• 9 July: China to report June Producer Price Index (PPI)
• 10 July: China to report June M0, M1, and M2 money supply growth rates
• 10 July: China to report June Total Social Financing
• 10 July: China to report June new renminbi loans

Entering next week, the pace of major economic data releases in Mainland China will accelerate with six key indicators scheduled.

For inflation, we project China’s June 2025 CPI to register a flat 0.0 per cent year-on-year growth coming from -0.1 per cent in May. Food prices remain the primary driver, as evidenced by our tracking of Ministry of Commerce data; by 20 June, fruit prices tallied an average month-on-month decline of -2.2 per cent, significantly softer than the -6.3 per cent drop observed in June 2024. Similarly, vegetable and fish prices recorded higher month-on-month increases versus the same period last year, while beef and lamb prices also rose more sharply year-on-year. However, abundant domestic supply continues to be the key factor constraining CPI growth at persistently low levels, offsetting upward price pressures.

For producer prices, we expect June 2025 PPI to decline by 3.5 per cent year-on-year, representing a deeper contraction compared to May’s -3.3 per cent. Three main factors are behind this downturn. First is a pronounced high base effect, wherein June 2024 saw the PPI decrease by 0.8 per cent. Second would be deteriorating external conditions, particularly the Trump administration tariffs imposed since April. This suppressed global demand and lowered international commodity prices, creating imported deflationary pressure. Third, the continued domestic economic restructuring – with traditional industries like real estate still undergoing capacity reduction – has been reducing demand for goods such as iron ore and coal, which is further restraining price movements of industrial goods.

For domestic loans, we anticipate new yuan-denominated loans in June 2025 to reach RMB 1.5 trillion (USD 209 billion), marking a year-on-year decrease of RMB 630 billion (USD 88 billion). This is due to the Chinese government’s coordinated growth-stabilizing policies, namely a moderately loose monetary policy and various stimulus measures, coupled with a low base from June 2024. However, constraints are evident: a 1.1 per cent annual decline in industrial profits tallied in the first five months of 2025 reflects weakening profitability in the sector. This may prompt some firms to scale back investment plans, dampening demand for medium- to long-term loans and limiting RMB loan growth in June. Additional headwinds stem from global economic uncertainty and ongoing pressures in managing local government debt.

Chinese stocks performed strongly over the past week, except for the MSCI China Index that declined by 0.94 per cent week-on-week. As of Thursday, 3 July, the Shanghai Composite Index rose by 1.08 per cent, the Shenzhen Component went up by 1.5 per cent, and the ChiNext Index increased by 1.87 per cent. From a size perspective, all small- and mid-cap stocks as well as large-cap stocks performed similarly over the past five days. From a style perspective, both value stocks (+1.02 per cent) and growth stocks (+1.07 per cent) performed similarly.

Looking ahead, fundamental expectations for aggregate demand remain weak. The “rush to export” effect weakened in June, shifting the primary focus back to domestic growth stabilization efforts. Monetary policy has entered an observation period following adjustments in June. Further cuts to banks’ reserve requirement ratio or interest rates are less likely in the near term. Throughout July, liquidity injections are expected to rely more on reverse repos and structural tools. However, considering the increasing pressure to lift GDP growth in the second half of the year, the possibility of the central bank further easing monetary policy cannot be ruled out.

In the short term, a recovery in risk appetite is driving the market rebound while constraints from fundamental factors have somewhat dissipated. Stocks may have more room to rise. From a medium-term perspective, given that both domestic and external constraints persist, the market is likely to maintain a volatile pattern although its range could potentially shift higher. However, the index likely remains some distance away from a trend reversal.

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.