Citi(US:C)2025-06-26 14:09Investment Rating - The report upgrades the GDP growth forecast to 5.0% for 2025E from 4.7% amid continued deflation [3][4][27]. Core Insights - A divergent domestic recovery is expected to continue, with the new economy gaining momentum while the property sector struggles [3][27]. - The report anticipates a 10bps rate cut and a 50bps RRR cut in 25H2E, alongside an estimated RMB500bn extra quasi-fiscal stimulus [3][52][56]. - Exports have shown resilience, with a growth of 6.0% YoY in dollar terms and 8.8% YoY in real terms in the first five months of 2025, despite high tariffs [4][11][18]. Economic Outlook - The report highlights a steady macro backdrop that could fuel structural highlights for investing [3]. - The household savings rate remains elevated at 41.1% in 25Q1, indicating cautious consumer behavior [28][33]. - Retail sales growth is anticipated at 4.7% YoY in 2025E, with a moderation to 4.5% YoY in the latter half of the year [28]. Export Dynamics - The impact of US tariffs is significant, with exports to the US dropping by -21.0% YoY in April and -34.5% YoY in May [5][26]. - Structural drivers such as transshipment and supply chain diversification have contributed to the resilience of exports [5][18]. - The report estimates a full payback of the US$32.3bn front-loading effect could drag exports growth by -1.5ppts for the remaining months of the year [26]. Investment Trends - Investment is divided between old and new economies, with AI capex remaining strong while traditional sectors face challenges [43][45]. - The report nudges down the FAI forecast to 4.0% YoY for 2025E, reflecting ongoing property downturn and tariff tensions [43][45]. - High-tech sectors continue to see rapid growth, with FAI up 11.6% YoY in Jan-May, particularly in IT [46][49]. Policy Measures - Policymakers are expected to maintain a wait-and-see approach, with limited urgency for immediate policy changes [47][60]. - The report suggests that structural monetary policies and quasi-fiscal tools will be utilized to support economic growth [52][53]. - No interim budget revision is anticipated, with the Ministry of Finance having a remaining quota of RMB7.5trn for the second half of the year [60][62].