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TIER 4 Sat, 10 May 2025 17:06:23 +0000
"Patience" is the watchword | The weekly recap ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- Podcasts and Essays on China -- Free Version * * * # Trivium China Weekly Recap: Patience is the Watchword | | Andrew Polk --- | May 10| | | ∙| | Guest post ---|---|--- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- # "Patience" is the watchword | The weekly recap **China 's economic authorities finally began rolling out support measures this week -- after hinting they would do so for months.** Specifically, following a meeting on Wednesday, monetary and financial officials unveiled a spate of policy boosters. The headline moves included: * A 10 bps cut to the key policy interest rate * A 50 bps cut to banks' reserve requirement ratio -- unlocking RMB 1 trillion in liquidity * A 25 bps cut to mortgage rates offered through the housing provident fund -- an employer/employee-funded social insurance program designed to support home purchases **Officials alsoexpanded relending support under the central bank (PBoC) by:** * Increasing support for agricultural and small businesses by RMB 300 billion * Expanding support for innovation and technological upgrading, by RMB 300 billion to RMB 800 billion * Launching a new RMB 500 billion facility to support service consumption -- covering sectors including eldercare, hotels, catering, entertainment, culture, sports, and education **Finally, authorities also offered more support for the stock market by:** * Reducing the risk weightings of insurance companies' equity holdings so they can ramp up stock investments * Broadening the scope of the PBoC's relending facility to help listed companies finance share buybacks * Expanding the scope of the PBoC's swap facility allowing insurers, securities brokerages, and fund management companies to swap bonds, exchange-traded funds (ETFs), public REITS, and stocks included in the CSI 300 for treasury bonds and central bank bills from the PBoC -- freeing up funds for more stock purchases **Our take:** All these moves are incremental, and in line with last year's monetary and financial adjustments -- taken together, they still amount to a pretty modest support package. * The policy rate cut is unlikely to meaningfully boost credit growth in an environment where businesses are still hesitant to finance new investments. * The mortgage rate cuts are unlikely to sway cautious homebuyers. * The relending programs for small businesses and innovation should provide some relief for manufacturers hurt by the trade war -- but the consumer-focused relending program won't boost household confidence, which is key to reviving consumption. * And the stock market support measures are explicitly meant to put a floor under share prices -- not drive a market rally. **Idiscussed all of this with Trivium's Head of Markets Research Dinny McMahon on the Trivium podcast this week.** * Our conclusion -- the same as it long has been -- was that what the economy really needs is stronger fiscal spending. **And encouragingly, a ramp-up in fiscal outlays still appears to be on the cards.** * Wednesday's monetary and financial measures were by no means a one-and-done policy support effort. * And promisingly, recent reserve requirement cuts for banks have generally foreshadowed surges in government bond issuance, as banks need the extra liquidity to absorb a wave of new government debt. **That said, the central government isn 't about to announce a big new financing package -- it will simply accelerate the central and local fiscal spending it already outlined at the Two Sessions in March.** The key takeaway for me is that China's economic officials are undertaking a remarkably patient approach. * Even with solid Q1 growth, there were arguably enough challenges facing the domestic economy -- weak housing demand, subdued household and business confidence, and widespread deflation -- to warrant a quicker rollout of monetary and fiscal easing. **And of course, the trade war -- while peaking in April -- was clearly escalating as early as February, offering yet another reason to frontload economic support and cushion impending export headwinds.** * But given this week's moves, and the lack of policy adjustments throughout Q1, it appears that China's leaders are purposefully holding back -- likely waiting to at least get a better gauge of the early, concrete impacts of the tariffs, and their interplay with persistent domestic economic weaknesses, before responding more forcefully. **That said, they have at least started responding -- with more, particularly on the fiscal side, likely arriving soon.** * For now, it's anyone's guess whether that incoming support will be too little, too late. * But what's clear is that Xi Jinping and company aren't hitting the panic button. **This measured, patient approach -- to the trade war, to monetary easing, to accelerated fiscal spending, and to the housing meltdown -- has become a defining feature of China's post-pandemic economic strategy, for better or worse.** _**Andrew Polk, Co-founder, Trivium China**_ _Was this email forwarded to you? If you 're not already a Trivium China subscriber, sign up to our free mailing list here if you want to stay on top of all things China-policy related._ ## Announcements **Check out our podcast!** In this week's podcast, Trivium Co-founder Andrew Polk and Dinny McMahon, Head of Markets Research, discuss the wave of monetary policy measures rolled out by financial regulators on Wednesday. * The gents get into the nitty gritty of China's financial system -- with forays into PBoC relending facilities, provident fund mortgages, and insurance companies' capital requirements -- to explain just what officials hope to achieve. * They then round things off with a chat about the latest developments in the U.S.-China trade war, and touch on China's plan to double down on exports in the years ahead. **New episodes drop weekly onSpotify and Apple Podcasts.** \------- ## What you missed ### Econ and finance **On Wednesday,as anticipated, Xi Jinping chaired a symposium with local officials to discuss the 15th Five-Year Plan (FYP), which will cover 2026 to 2030.** * At the meeting, Xi highlighted several strategic tasks for the next FYP -- all aimed at navigating mounting U.S. economic pressure -- including doubling down on home-grown innovation, raising household incomes, and strengthening social security. * The Party will endorse recommendations for the new FYP at a Central Committee Plenum this fall. **Labor Daytravel data suggests the U.S.-China trade war has done little to dent consumer confidence, at least for now. **During the five-day holiday (May 1-5): * 314 million people traveled domestically, up 6.4% y/y * Total tourism-related expenditure hit RMB 180.3 billion, up 8.0% y/y * **In real terms, per capita spending rose 1.6% y/y and increased 2.2% relative to 2019** * * * ### Tech **On Tuesday, six ministries and the Chinese Academy of Sciences (CAS)released plans to overhaul China's ag innovation system -- with the explicit goal of becoming the world leader in agricultural science and technology by 2035.** * The document plans to fix structural issues that constrain agtech innovation and to achieve self-sufficiency -- something Xi has been talking about for years. * Key measures include consolidating government-led ag research, pushing leading ag companies to increase R&D, and ensuring talented young scientists have opportunities to study and work in agtech. **On May 2, the Irish Data Protection Commission (DPC)fined TikTok EUR 530 million for transferring EU residents' personal information (PI) to China.** * The EU's General Data Protection Regulation (GDPR) requires companies to guarantee outbound PI transfers are protected to EU standards, which includes ensuring unauthorized third parties cannot access the data. * But China's national security laws provide the government with unfettered access to PI sent to China. * TikTok has resolved the compliance issue by constructing EU data centers to store EU PI -- but this fine applies to transfers before the data centers were in place. * * * ### Foreign affairs **On Thursday, Xi Jinpingmet with Russian President Vladimir Putin in Moscow.** * Xi was in town for Russia's Victory Day celebration, marking the 80th anniversary of the end WWII in Europe. * The pair released a joint statement with a not-so-subtle dig at the U.S.: "Some countries are obsessed with hegemony…and curb other countries' economic and technological development in order to protect their own privileges." **On Tuesday, China 's commerce ministry (MofCom) **announced anti-dumping duties**ranging from 48.4% to 166.2% on Indian cypermethrin -- an insecticide used widely in agriculture -- effective Wednesday.** * Officially, the move followed complaints from domestic producers. * Unofficially, it sent a pointed message: Don't screw over China to appease Washington. * This follows last month's warning from MofCom that countries collaborating with the U.S. to isolate China will face dire consequences. * * * ### U.S.-China **On Wednesday, the U.S. and Chinaconfirmed that Vice Premier He Lifeng will meet U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer in Geneva on Saturday.** * This will be the first confirmed dialogue between the two countries since the trade war kicked into high gear in April. * Bessent told the press the talks will focus on "de-escalation rather than a big trade deal". * Meanwhile, China's MofCom urged the U.S. to "engage in good-faith negotiations and correct previous wrongdoings." **On May 2, U.S. Republican lawmakers John Moolenaar and Rick Scott sent a letter to Paul Atkins -- chair of the Securities and Exchange Commission (SEC) -- calling for the delisting of certain U.S.-listed Chinese companies.** * The letter alleges 20 firms, including Alibaba and Pinduoduo, are under Chinese government control and have ties to the Chinese military. * The lawmakers urged the SEC to invoke the Holding Foreign Companies Accountable Act (HFCAA) to begin the delisting process. **As always, it was a busy week in China.** * Thank goodness Trivium China is here to make sure you don't miss any of the developments that matter. | A guest post by| Andrew PolkAndrew Polk is a co-founder at Trivium China and oversees the firm's macroeconomic and markets research.Subscribe to Andrew --- _You 're currently a free subscriber to Sinica. 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