CLN
Consumption Stimulus
The State Council Information Office held a 9 am press conference featuring the People’s Bank of China’s (PBOC) Central Bank Governor Pan Gongsheng, the Financial Supervision Bureau (FSB) Director Li Yunze, and China Securities Regulatory Commission (CSRC) Chairman Wu Qing. Q1 Chinese economic data was “relatively good” though the “global economy is full of uncertainties, economic fragmentation, and increased trade tensions, disrupting the world’s industrial supply chain”. Due to the effect of “weakening global growth momentum,” blamed on the US’ tariff policy, the PBOC announced the following measures would be taken following instruction from the CPC Central Committee’s April 25th economic and monetary policy meeting:
- Bank’s reserve requirement ratio (RRR), the amount of bank deposits kept in reserve and not lent out, will be reduced to 9.0% from 9.5%, which will add CNY 1 trillion to the market.
- The deposit reserve ratio of auto finance and financial leasing companies will be reduced to 0% from 5%. This should be a strong catalyst for automakers, though Hong Kong-listed stocks had a mixed performance.
- The 7-day reverse repo interest rate has been reduced to 1.4% from 1.5%, which will lower the LPR by 0.1%.
- “The interest rate of structural monetary policy instruments was reduced by 0.25%,” including agricultural and small business loans, 1.5%, and the PBOC loan rate to commercial banks (PSL) to 2%.
- The personal housing fund loan was reduced by 0.25% to 2.6% for a 5-year loan. It’s a bit surprising real estate stocks didn’t have a better day.
- Loans supporting scientific and technological innovation increased to CNY 800 billion from CNY 500 billion to “support large-scale equipment replacement and consumer goods exchange.”
- CNY 500 billion will be lent to commercial banks to “service consumption and pension refinancing.” The objective is to “encourage and guide financial institutions to increase financial support for key areas of service consumption such as accommodation, catering, culture, sports and entertainment, education, and the elderly care industry, and cooperate with fiscal and other industry policies to better meet the needs of the masses for consumption upgrading.” I highlighted this section as all the commentary/media is focused on interest rates, though no one mentions this consumption stimulus.
- Loans to agricultural and small businesses will be increased by CNY 300 billion.
- CNY 300 billion will be lent to support stock share repurchases, and CNY 500 billion to “securities fund insurance companies.”
- Support local governments to minimize the default loss risk of bonds.
The CSRC’s Wu Qing spoke to the “Nine National Policies,” which include encouraging corporate governance reforms, including buybacks and dividends. The CSRC also supports stock market purchases from sovereign wealth fund Central Huijin, national social security fund, securities and fund institutions, banking and insurance institutions. He noted that 90% of Chinese Mainland-listed companies’ revenues are generated in China. FSB’s Li Yunze focused on measures to support the real estate and stock markets. He stated that the “white list”, real estate projects deemed too big to fail, have received CNY 6.7 trillion of loans. Insurance companies are being encouraged to increase their equity allocations. Interestingly, the speakers explicitly blamed the US and US tariff policies for the turbulence in the global economy.
US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will meet with Vice Premier He Lifeng this weekend in Switzerland. Progress can be made by focusing on easy wins, such as fentanyl and reducing tariffs from both sides, as we’ve seen already in critical goods. The Ministry of Commerce (MoC) press conference noted that, “Based on the full consideration of global expectations, Chinese interests, and appeals from American industry and consumers, China has agreed to engage with the US. Vice Premier He Lifeng, as the Chinese leader of China-US economic and trade, will talk with the US leader, US Treasury Secretary Bessent, during his visit to Switzerland.”
Key News
Asian equities had a positive day despite a stronger US dollar, led by Thailand, while Pakistan underperformed following India’s airstrikes.
Interestingly, Indian equities overcame morning losses to post small gains, hopefully indicating the situation doesn’t escalate amongst the nuclear-armed countries. Interestingly, defense and military stocks were top performers in both Mainland China and Hong Kong. Both markets opened higher following the financial press conference and US-China trade talks, though faded over the course of the trading day. The Hang Seng, Hang Seng Tech, Shanghai, and Shenzhen indexes have hit resistance levels, as they rebound to pre-Liberation Day levels.
Financials were a strong performer in both markets as beneficiaries of the lower interest rate, as old school value plays outperformed growth in both markets. Mainland China had a much better day compared to Hong Kong due to the higher growth exposure, as Hong Kong’s growth stocks appeared to be hit with profit taking. Trip.com gained +2.29%, a rare growth outperformer following the strong May Day holiday travel data. Mainland investors sold -$1.038 billion of Hong Kong (net buying year-to-date is $78.585 billion). President Xi’s visit to Moscow might weigh on foreign investors’ sentiment, though it is hard to say. Potentially, today’s press conference didn’t meet expectations, though the fact that it was called at all should be taken as a positive. The Chinese government is very focused on stimulating its economy, supporting the real estate and stock markets. All good things in my opinion.
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Last Night’s Performance
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Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.22 versus 7.21 yesterday
- CNY per EUR 8.21 versus 8.16 yesterday
- Yield on 10-Year Government Bond 1.64% versus 1.63% yesterday
- Yield on 10-Year China Development Bank Bond 1.67% versus 1.66% yesterday
- Copper Price +0.46%
- Steel Price +0.45%
