Investor Presentation Asia Pacific：China ' s Pivot，What' s Next Post US Election

China's Economic Policies and Debt Management - China plans a one-time Rmb6 trillion increase in local government special debt ceiling, with issuance spread evenly over 2024-26[19] - A Rmb10 trillion local government debt swap program is confirmed, aiming to restructure debt burdens among central and local governments, PBoC, and banks[19][22] - Beijing intends to increase the official deficit and expand the quota and usage of Local Government Special Bonds (LGSB) for 2025[19] US Tariff Impact on China - Scenario 1: 50%/60% targeted tariffs on China may have less impact than 2018-19, with a potential 1ppt GDP growth reduction, due to supply chain rewiring over the past 7 years[27] - Scenario 2: 50%/60% targeted tariffs on China plus 10% tariffs on the rest of the world could lead to higher deflation pressure and constrained export capacity[27] - China's export share in the US market has declined, but diversification to ASEAN and other regions has helped maintain a strong global export share[30][31] Sectoral Exposure to US Tariffs - Machinery and Electrical Equipment face a potential 50.9% incremental tariff, with 15.2% of China's exports going to the US[36] - Miscellaneous Manufactured Articles (e.g., toys, furniture) could see a 52.7% incremental tariff, with 27.4% of China's exports to the US[36] - Textiles face a 41.0% incremental tariff, with 15.7% of China's exports to the US[36] Reflation and Social Welfare Reforms - China's GDP deflator could rise to 2.0% in 2025 and 2.5% in 2026 under an optimal case with a Rmb10 trillion fiscal stimulus[37] - Social welfare spending in China is significantly lower than the G7 average, with only 13% of GDP allocated to social security contributions[43][44] - Household saving rates in China remain high, driven by insufficient social safety nets, with rural residents and migrant workers showing higher saving rates[47][48] Housing Market and Urban Development - A 1 million unit urban village renovation program is announced, with Rmb0.8 trillion allocated for cash resettlement, aiming to reduce housing inventory[39][41] - Residential inventory in China remains elevated, with 6.1 million units under construction as of 2024[39]