Core Viewpoint - The current phase of macro liquidity being the most accommodative may be coming to an end, with expectations of a marginal decline in government debt growth and loan growth in the short term, potentially leading to a continued decline in M2 year-on-year in the first quarter [2][3] Group 1: Understanding Liquidity - Liquidity assessment includes two dimensions: the liquidity of the real economy and the liquidity of the financial market, where the former affects future price and profit trends, and the latter influences current capital market transaction volumes [6][14] - The two main factors affecting liquidity are the growth scale of M2 and the scale of residents' deposit migration [8][16] Group 2: Changes in Liquidity Conditions - M2 year-on-year growth may be declining due to the "escape from extraordinary" policy, with expectations that the marginal increase in government debt in 2026 may be less than in 2025, and a potential decrease in loan growth could further drag down M2 [9][22][23] - The recent increase in market volatility suggests that the probability of accelerated migration of residents' deposits is low, which may lead to a decline in macro liquidity [2][25] Group 3: Differences in Current Liquidity Conditions - The current phase of liquidity contraction differs from historical patterns in three key aspects: 1. The impact on corporate profits is different, as the midstream sector is currently the most stable, with its demand less sensitive to domestic liquidity conditions [3][32] 2. The relationship between stocks and bonds has changed, with current indicators suggesting that stocks have a relative advantage in allocation compared to bonds [3][39] 3. The policy response may differ, as the current economic dynamics are more aligned with high-tech innovation and direct financing rather than traditional real estate and local financing platforms [3][41]

Core Viewpoint - The article discusses the potential for a "good start" in the Chinese economy for 2026, emphasizing the need for careful evaluation of fiscal income, debt issuance, and project investments as indicators of economic performance [2][3]. Group 1: Income "Good Start"? - The logic states that fiscal expenditure equals fiscal income plus debt, and the assessment of fiscal income's upward momentum at the beginning of 2026 is crucial [4][21]. - The conclusion indicates that fiscal income at the beginning of 2026 may not show significant upward movement, particularly for land sales revenue, which is expected to face downward risks [5][23]. - The analysis highlights that the "income tail effect" from 2025 may not be significant, leading to insufficient upward momentum for Q1 2026 income [6][24]. Group 2: Debt "Good Start"? - The logic reiterates that fiscal expenditure equals fiscal income plus debt, focusing on the issuance scale of government bonds at the beginning of 2026 [8][31]. - The conclusion suggests that the scale of new government debt issuance at the beginning of 2026 may not be significantly high [9][33]. - The analysis indicates that new local government debt issuance in Q1 2026 is unlikely to exceed that of Q1 2025, based on the disclosure of local debt issuance plans [10][36]. Group 3: Project "Good Start"? - The logic emphasizes that "funds follow projects," and the performance of local projects at the beginning of the year is a key reference for fiscal efforts [12][44]. - The conclusion presents a pragmatic qualitative assessment, with quantitative indicators from central authorities showing moderate expectations, while major provinces' project confirmations are pending until mid-January [13][45]. - The analysis focuses on whether there will be significant net expansion in major provinces' budgets in January and whether the investment growth rate of major projects in 2026 can improve [16][47].

Core Viewpoint - The December PMI data shows a rebound in manufacturing activity, driven by year-end factors, seasonal effects, and external demand, indicating resilience in the manufacturing sector [4][5][8]. Group 1: PMI Data Overview - The manufacturing PMI for December is reported at 50.1%, up from 49.2% in the previous month [2][21]. - The production index increased to 51.7%, a rise of 1.7 percentage points from 50.0% [21]. - The new orders index rose to 50.8%, compared to 49.2% previously, while the new export orders index improved to 49.0% from 47.6% [21]. - The employment index slightly decreased to 48.2% from 48.4%, and the supplier delivery time index remained stable at 50.2% [21]. - The raw material inventory index was reported at 47.8%, up from 47.3% [21]. Group 2: Influencing Factors - **Year-End Factors**: Anticipation of next year's investments has led to increased funding allocations, boosting the construction PMI to 52.8% from 49.6% [5][12]. The consumer goods manufacturing sector also saw a year-end rebound, with December figures at 51.4% for 2024 and 50.4% for 2025 [12]. - **Quarter-End Effects**: The production index typically peaks at quarter-end, with December's production index at 51.7%, reflecting a seasonal increase [6][14]. - **External Demand**: The new export orders index rose to 49.0%, indicating strong external demand, supported by a 7.2% increase in port container throughput [8][18]. Group 3: Additional Insights - **Price Trends**: The purchasing price index remains high at 53.1%, while the factory price index is low at 48.9%, indicating ongoing pricing pressures [22]. - **Inventory Trends**: There are signs of inventory replenishment, with the purchasing index at 51.1%, up from 49.5% [22]. - **Sector Performance**: The construction sector's business activity index rose significantly, while the service sector index was slightly below the neutral mark at 49.9% [22].

Core Viewpoint - The article outlines key policy directions and developments in China's economic and financial landscape as the year comes to a close, focusing on fiscal, monetary, and industrial strategies for 2026. Fiscal Policy - The National Fiscal Work Conference emphasized expanding fiscal spending to ensure necessary expenditure levels, optimizing government bond tools, and enhancing fiscal-financial collaboration to amplify policy effectiveness [3][27]. - The report on the 2025 fiscal budget indicated a focus on directing new special bond quotas towards regions with well-prepared projects and high investment efficiency, while also addressing local government hidden debt issues [3][11]. - The Ministry of Finance and other regulatory bodies are committed to strict measures against the creation of new hidden debts, reinforcing accountability for local governments [3][15]. Monetary and Capital Markets - The People's Bank of China (PBOC) highlighted the importance of integrating incremental and stock policies to support key sectors such as domestic demand, technological innovation, and small and medium enterprises [4][15]. - The PBOC's Financial Stability Report for 2025 aims to create a favorable environment for long-term investments in the A-share market, enhancing the scale and proportion of various long-term funds [4][29]. Industrial Development - The National Development and Reform Commission (NDRC) called for optimizing traditional industries, particularly in steel and petrochemicals, by balancing supply and demand and promoting structural reforms [5][26]. - The NDRC's recent initiatives include fostering innovation in emerging sectors like new energy vehicles and lithium batteries, while addressing issues of "involution" in competition to maintain a fair market environment [5][26]. - The Industrial and Information Technology Conference outlined strategies to stabilize manufacturing investments, enhance industrial chain resilience, and promote technological innovation [5][22]. Encouragement of Foreign Investment - The updated Encouragement Directory for Foreign Investment aims to attract more foreign capital into advanced manufacturing, modern services, and high-tech sectors, particularly in central and western regions of China [17][19]. - The 2025 version of the directory includes 1,679 entries, with a net increase of 205 entries compared to the previous version, reflecting a strategic focus on sectors like smart manufacturing and modern service industries [18][19]. Infrastructure Development - The NDRC's article on modern infrastructure emphasizes the need for high-quality construction of strategic transport corridors and energy networks, as well as enhancing safety measures for critical infrastructure [21][26]. - The focus on developing a comprehensive infrastructure system includes promoting low-altitude and hub economies, as well as ensuring robust safety protocols for major energy projects [21][26].

Core Viewpoint - The article focuses on the recent appreciation of the Renminbi (RMB) and challenges the prevailing narrative that links the Federal Reserve's interest rate cuts to RMB appreciation and subsequent damage to export competitiveness [2][3]. Group 1: Current RMB Exchange Rate Narrative - The popular narrative suggests that the Federal Reserve's likely interest rate cuts will lead to a weaker USD, thus causing the RMB to appreciate and harming China's export competitiveness. This narrative is based on several assumptions that require validation [3]. - The relationship between the Federal Reserve's interest rate cuts and the USD's weakness is not necessarily direct, as historical data shows a low correlation between the two [4]. - The assumption that narrowing interest rate differentials between China and the US will lead to RMB appreciation is flawed, as the correlation between funding rate differentials and the USD/CNY exchange rate is weak [5]. Group 2: RMB Appreciation Analysis - The article divides the RMB appreciation observed this year into two phases: the first phase from mid-April to November, driven primarily by policy support, and the second phase from late November to the present, driven by market supply and demand [9][10]. - In the first phase, the RMB middle rate appreciated from 7.21 to 7.08, largely due to policy interventions, while in the second phase, market dynamics took over, leading to a different adjustment mechanism [14]. - Factors contributing to the recent market-driven appreciation include the release of previously held foreign exchange reserves and seasonal trends in net settlement of foreign exchange by enterprises [16]. Group 3: Future Outlook for RMB Exchange Rate - The article anticipates that the RMB will maintain stable fluctuations against the USD through 2026, with limited potential for significant appreciation [17]. - Current valuation metrics indicate that the RMB is reasonably priced, with deviations from expected levels being minimal [18]. - The central bank's policy appears to be aimed at preventing excessive appreciation of the RMB, as indicated by recent trends in the counter-cyclical factor [22]. - The supply-demand dynamics suggest that while there may be short-term volatility, the underlying support for sustained appreciation is not strong enough at this time [24][27]. - External factors, particularly the USD index, are expected to limit the pressure for a prolonged decline in the USD [28]. - Overall, the RMB's future trajectory will depend on complex factors, with a preference for stable two-way fluctuations rather than significant appreciation [29].

Economic Overview - The Huachuang Macro WEI index has shown a slight recovery, reaching 5.22% as of December 21, up 0.06 percentage points from the previous week [2] - Real estate sales are improving, with the year-on-year decline in residential property transaction area narrowing to -19% for the week ending December 26, compared to -34% in November [2][3] - Infrastructure construction is seeing improvements, with the operating rate of asphalt plants rising to 31.3%, an increase of 3.7 percentage points from the previous week [2][3] Price Trends - Prices of major commodities have increased, with COMEX gold closing at $4546.2 per ounce (up 4.6%), LME copper at $12218 per ton (up 4.1%), and Brent crude oil at $60.6 per barrel (up 1.4%) [2][34] - The price of second-hand homes has decreased by 0.2% in first-tier cities and nationwide, with a cumulative decline of 6.3% in first-tier cities this year [37] Consumer Demand - Retail sales of passenger cars remain low, with a year-on-year growth rate of -11% in the third week of December, compared to -17% previously [13] - The average land premium rate across 100 cities was 1.6% in December, down from 2.7% in November [13] Production Insights - The operating rates in various industries are weak, with notable declines in Jiangsu and Zhejiang weaving machines and full-steel tires [15] - The asphalt plant operating rate has improved, indicating a slight recovery in infrastructure [15] Trade Dynamics - Port container throughput has decreased by 5.9% week-on-week as of December 21, with a year-on-year increase of 9.1% [19] - The shipping market is showing positive trends, with the Shanghai export container freight index rising by 6.7% [20] Interest Rates - The yield on 1-year, 5-year, and 10-year government bonds are reported at 1.2872%, 1.5948%, and 1.8376% respectively, with mixed changes compared to the previous week [47]

Core Viewpoint - The article discusses the narrative that the Federal Reserve's interest rate cuts lead to the appreciation of the Renminbi (RMB), which may harm export competitiveness. However, this narrative is questioned for its logical consistency [2][5]. Group 1: Popular Narrative and Core Logic - The core narrative is that the Federal Reserve's interest rate cuts lead to a weaker dollar, resulting in RMB appreciation, which could negatively impact China's export competitiveness [5]. - The narrative's logical inconsistencies include: 1) The relationship between Federal Reserve rate cuts and a weaker dollar is not guaranteed; 2) RMB appreciation does not necessarily equate to a loss of export competitiveness [2][3]. Group 2: Assessment of RMB Exchange Rate Outlook - The RMB exchange rate is currently considered fairly valued, with no significant overvaluation or undervaluation issues. The deviation from the "value center" is around 0% to 2% [10][61]. - Internally, the RMB's stability is supported by export resilience and policy support, but significant upward momentum for appreciation may require further accumulation of fundamental support [10][89]. - Externally, the Federal Reserve's preventive rate cuts may help sustain economic growth and relative asset price advantages, limiting the pressure for a continuous decline of the dollar [10][79]. Group 3: Analysis of RMB Appreciation in 2023 - The RMB's appreciation in 2023 can be divided into two phases: 1) From mid-April to November, where policy support was the main driver, with the RMB middle price rising from approximately 7.21 to around 7.08 [38][44]. 2) From late November to the present, where market supply and demand became the primary driver, with the RMB middle price further appreciating to just above 7.04 [39][47]. Group 4: Factors Influencing Future RMB Exchange Rate - Four key factors to consider for future RMB exchange rate trends include: 1) Valuation factors indicate that the RMB is not significantly overvalued or undervalued [10][61]. 2) Policy orientation has shifted from guiding stable appreciation to preventing excessive appreciation volatility [64][67]. 3) Internal supply and demand dynamics, particularly the flow logic of trade surplus and net settlement rates, are crucial for understanding RMB trends [72][73]. 4) External responses, particularly the behavior of the dollar index, suggest limited potential for sustained dollar weakness due to the current economic context [79][80].

Core Viewpoint - The article emphasizes that the midstream sector is currently the standout performer in terms of profit growth and revenue, contrasting with the overall decline in industrial profits [4][5][24]. Group 1: Midstream Sector Performance - In November, the midstream sector showed a profit growth of 6.77%, the only sector with a positive growth rate among five sectors, while upstream and downstream sectors experienced declines of -9.52% and -48.04% respectively [5][13]. - The revenue growth for the midstream sector in November was 4.66%, outperforming other sectors [5][13]. - The equipment manufacturing sector, particularly in electronics, aerospace, and smart devices, significantly contributed to the midstream sector's profit growth, with specific industries seeing profits increase by 57.4% and 54.0% respectively [5][29]. Group 2: Overall Industrial Profit Data - In November, the overall profit of industrial enterprises decreased by 13.1%, a decline from the previous value of -5.5% [24]. - The inventory level as of November showed a year-on-year increase of 4.6%, up from 3.7% [24]. - The profit growth rates for state-owned enterprises, private enterprises, and foreign enterprises were -17.0%, -12.6%, and -7.3% respectively [24]. Group 3: Quantity and Price Analysis - The midstream sector's value-added growth rate in November was 7.36%, higher than the overall industrial growth rate of 4.8% [6][15]. - The Producer Price Index (PPI) for the midstream sector turned positive in November, marking the first month of positive growth since June 2024, with a month-on-month increase of 0.04% [7][18]. - The profit margin for the midstream sector in November was 5.7%, which is an improvement compared to the same period last year [7][18]. Group 4: Supply and Demand Dynamics - The supply-demand dynamics for the midstream sector have been improving, with a favorable difference between demand and investment growth rates compared to upstream and downstream sectors [8][22]. - The article predicts that midstream prices are likely to continue to recover, leading to further profit increases in the sector [8][22].

Core Viewpoint - The article highlights that the U.S. employment indicators are stabilizing at low levels, with various metrics showing signs of steadiness in the labor market [2]. Group 1: Recent Economic Data and Events - Multiple economic data points from the U.S. exceeded expectations, including Q3 GDP growth rate, personal consumption, industrial output growth for November, and the Richmond Fed manufacturing index for December. However, consumer confidence and durable goods orders growth fell short of expectations [4][18]. - In the Eurozone, Spain's November PPI decreased compared to the previous value, while Italy's November PPI increased [5][18]. - Japan's inflation and industrial output were below expectations [5][18]. Group 2: Upcoming Economic Data and Events - Key upcoming economic indicators to watch include the Eurozone manufacturing PMI for December, scheduled for release on January 2, and the S&P Global U.S. manufacturing PMI for December, also set for January 2 [6][20]. Group 3: Weekly Economic Activity Index - The U.S. economic activity index showed a slight rebound, with the WEI index at 2.32% for the week ending December 20, compared to 2.31% the previous week [7][22]. - Germany's economic activity index also trended upward, reaching 0.14% for the week ending December 21 [7][22]. Group 4: Demand - U.S. retail sales growth, as measured by the Redbook index, increased year-on-year to 7.2% for the week ending December 19, up from 6.2% the previous week [8][28]. - Mortgage rates in the U.S. remained stable, with a slight decline in mortgage applications [9][30]. Group 5: Employment - The ADP weekly employment figures showed stabilization at low levels, with approximately 46,000 new jobs added in the four weeks ending December 9, down from 70,000 the previous week [9][35]. - Initial jobless claims fell to 214,000 for the week ending December 20, better than expected, while continuing claims rose to 1.923 million, exceeding expectations [10][38]. - The number of job vacancies remained stable, with the Indeed job vacancy index at 104.66 as of December 12, a slight decrease of 0.2% from the previous week [11][41]. Group 6: Prices - Commodity prices rebounded, with the RJ/CRB commodity price index increasing by 1.8% week-on-week as of December 26, following a decline of 1.1% the previous week [12][46]. - U.S. gasoline prices continued to decline, averaging $2.72 per gallon for the week ending December 22, down 1.9% from the previous week [12][46]. Group 7: Financial Conditions - Financial conditions in the Eurozone improved, while U.S. financial conditions remained stable at high levels [13][49]. - Offshore dollar liquidity showed slight easing, with the three-month swap basis for the yen against the dollar at -24.1 pips, improving from -25.8 pips the previous week [13][51]. - The spread-to-worst for high-yield dollar corporate bonds remained stable at 265.3 basis points as of December 26 [13][54]. - U.S. and Japanese long-term government bond spreads remained stable, with the 10-year U.S.-Japan bond spread at 214.1 basis points [13][57]. Group 8: Fiscal - As of December 24, cumulative federal spending in the U.S. for the year was approximately $7.66 trillion, reflecting a year-on-year growth of 5.9% [15][62].

Core Viewpoint - The third quarter GDP of the United States exceeded expectations, with a quarter-on-quarter annualized growth rate of +4.3%, up from +3.8% previously and above the expected +3% [2][38] - The economic data indicates a K-shaped recovery, where overall economic growth contrasts with declining living standards for many, highlighting a significant wealth gap [4][13] Group 1: Economic Disparities - AI-related investments continue to drive economic growth, with a contribution of +0.4% to GDP growth in Q3, while traditional non-AI investments show negative growth [6][14] - The wealth effect from AI is concentrated among the top 20% of income earners, who hold approximately 87% of all stock assets, leaving the majority of the population unable to benefit from this growth [7][23] - 67% of wage-dependent individuals are classified as "living paycheck to paycheck," with a significant portion unable to cover daily expenses, contributing to rising credit defaults and declining consumer confidence [7][23] Group 2: Employment and Consumer Behavior - The job market remains weak, particularly for low-wage positions, with new job creation in these sectors expected to be below 100,000 annually starting in 2024 [8][29] - AI's contribution to economic growth does not translate into job creation, instead replacing entry-level positions, leading to higher unemployment rates among younger demographics [8][30] - The housing market is also struggling, with high mortgage rates and rising home prices making homeownership increasingly unattainable for average earners [9][35] Group 3: GDP Data Analysis - Q3 GDP growth was primarily driven by strong consumer spending, particularly in services, while durable goods consumption remained weak [6][42] - Private investment showed a decline, with inventory investment improving but still negative, indicating ongoing challenges in traditional sectors [6][43] - Net exports weakened significantly due to a contraction in imports, while government spending increased, contributing positively to GDP growth [6][46]