China Market Weekly Recap – Consumption Stimulus, Stock Market Volatility, Bond Rally, China-US Export Controls
China Market Weekly Recap – Consumption Stimulus, Stock Market Volatility, Bond Rally, China-US Export Controls

China Market Weekly Recap – Consumption Stimulus, Stock Market Volatility, Bond Rally, China-US Export Controls

Hello Everyone! Welcome to China Market Weekly Recap by Yuan Talks!

As 2025 begins, China’s policymakers are unveiling more details of their strategies to drive economic growth. The National Development and Reform Commission (NDRC), the country’s top economic planner, convened a key policy meeting, emphasizing six priority areas aimed at bolstering economic growth.

Among the key initiatives, an expansion of consumer goods trade-in programs with subsidies for electronics like smartphones, tablets and smartwatches aims to invigorate consumption. On that front, more than 10 local governments have extended their trade-in subsidy policies through 2025. To strengthen the support for key infrastructure projects, China plans to issue more ultra-long special treasury bonds, a move expected to reinforce growth momentum.

The policy support comes as the latest economic data reflects a mixed picture. In December, factory activity grew at a slower pace, with production and demand hitting three-month lows. Meanwhile, service activities accelerated, and the construction sector returned to growth for the first time this year, signaling improving confidence in some sectors.

Tensions between China and the US escalated further this week. China included 28 US entities in its own Export Control List and proposing new restrictions on lithium technologies crucial to battery production. China also designated ten US companies involved in arms sales to Taiwan as part of its Unreliable Entity List. The US added 11 Chinese companies to its Entity List in a further move to tighten export controls citing concerns about national security.

In addition, the US reportedly considers potential rules to restrict or bar the use of Chinese drones in the US. In response, prompting China to express oppositions and vow to take countermeasures.

China’s capital markets began the year with volatility. A-shares saw a sell-off on the first two trading days of 2025, driven by market uncertainty. The PBOC conducted a second swap facility operation to enhance liquidity, with the poll of market participants expanded. In addition, the authorities relaxed special relending rules to encourage stock buybacks and shareholding increases.

The Chinese yuan weakened sharply against the dollar, crossing the 7.3 mark for the first time in 14 months, adding pressure to investors navigating currency risks.

Amid the stock market slump, the government bond continued to rally, with long-term government bond yields hitting new record lows amid expectations of further policy easing, but analysts cautioned about potential corrections.  Meanwhile, In addition, regulatory scrutiny of irregularities in the bond market remains tight. The PBOC announced administrative penalties for several financial institutions involved in improper transactions, underscoring its “zero-tolerance” stance on market misconduct.

In Hong Kong, the capital markets showed promising activity as MixueBingcheng, a popular beverage chain, resubmitted its IPO application amid a surge of new drink chain listings.

According to PwC, Hong Kong’s IPO fundraising is on track to reach a four-year high in 2025, potentially reclaiming its position among the world’s top three IPO markets. Meanwhile, Citibank reaffirmed its mid-year target for the Hang Seng Index at 26,000, attributing its preference for A-shares over H-shares to the anticipated impact of supportive policies in mainland China. This suggests an underlying belief in the positive ripple effects of China’s economic recovery on Hong Kong’s market performance.

In the real estate sector, the optimism triggered by the stimulus continues.  Major cities, including Beijing, Shanghai, and Guangzhou, reported strong second-hand home sales in December, with several regions hitting multi-year highs. Developers, while still cautious, saw nearly a 30% month-on-month surge in sales during December, even as annual figures for 2024 remained over 30% lower.

In the auto market, the government plans to ensure new energy vehicles (NEVs) account for at least 30% of annual government vehicle procurements. Analysts project NEV penetration to exceed 55% in 2025, with automakers expecting to sell 16.5 million units next year. Many automakers reported strong sales for December, though competition among manufacturers is intensifying, raising the likelihood of more price wars ahead.

The latest data showed that China’s railway investments grew by 11.3% in 2024, hitting a new record. Looking ahead, the country plans to complete 590 billion yuan in railway investment and put 2,600 kilometers of new rail lines into operation in 2025. Air travel saw significant gains, with the civil aviation sector hitting record highs in 2024 and Spring Festival passenger traffic projected to exceed 90 million.

In other notable developments, China issued guidelines to accelerate the growth of its data industry, targeting a compound annual growth rate (CAGR) of 15% through 2029. The entertainment sector faced challenges, with box office revenues plunging over 20% in 2024, reaching decade-ago levels. On the corporate front, Alibaba made headlines by selling its entire stake in Sun Art Retail for HK$13.1 billion, further signaling its exit from offline retail ventures.

Stay with Yuan Talks for more updates as we monitor these dynamic shifts in the weeks ahead.