Core Viewpoint - China's foreign exchange reserves reached $3.34 trillion in October, marking an increase of $4.685 billion from the previous value, remaining above $3.3 trillion for three consecutive months and above $3.2 trillion for 24 months, the highest level since December 2015 [1] Group 1: Foreign Exchange Reserves Overview - Foreign exchange reserves are crucial for international payments and are held by central banks and government institutions, enhancing the ability to repay short-term foreign debts and maintain economic security [1] - The sources of China's foreign exchange reserves include trade surplus, foreign direct investment (FDI), and capital flows from international investors purchasing Chinese financial assets [2] Group 2: Trade Surplus and FDI - China's trade surplus is expected to continue expanding, driven by the relative strength of global and domestic economies, with projections indicating a record high by 2026 [3] - FDI is influenced by the profitability of industrial enterprises in China, with historical trends showing that FDI growth aligns with the performance of industrial profits [3] Group 3: Capital Flows and PPI - The growth of industrial profits positively impacts the A-share market, attracting overseas financial capital, while the Producer Price Index (PPI) has shown signs of recovery, which is expected to support industrial profit growth and further attract capital inflows [3] Group 4: Valuation and Relative Value Changes - As of Q2 2025, the composition of global foreign exchange reserves shows that the U.S. dollar accounts for 56.33%, with China's reserves primarily in U.S. dollar assets, particularly U.S. Treasury bonds [4] - The 10-year U.S. Treasury yield is anticipated to decline, which would increase the value of U.S. bonds and positively impact China's foreign exchange reserves [5] Group 5: Dollar Index and Economic Indicators - The U.S. dollar index is expected to decline in 2026, which would raise the dollar value of non-dollar assets and positively influence China's trade surplus and capital inflows [6][7] - The relationship between the dollar index and U.S. Treasury yields indicates that a decline in yields will likely lead to a decrease in the dollar index, further supporting China's foreign exchange reserves [7] Group 6: Future Projections and Implications - By 2026, China's foreign exchange reserves are projected to steadily increase from the current $3.3 trillion, supported by both absolute scale and relative value changes [8] - This increase will enhance China's ability to repay short-term foreign debts and stabilize the renminbi exchange rate, contributing to financial stability in the A-share market [8]

Profit Growth Analysis - In August 2025, the cumulative year-on-year profit growth rate of industrial enterprises was 0.9%, a significant recovery of 2.6 percentage points from July 2025's -1.7%[1] - The cumulative year-on-year revenue growth rate for industrial enterprises in August 2025 was 2.3%, unchanged from July 2025[1] - The year-on-year profit growth rate for industrial enterprises in August 2025 was 20.4%, a substantial increase from the previous month's -1.5%[1] Contributing Factors - The profit growth shift from negative to positive was primarily supported by a low base effect from the previous year[1] - The Producer Price Index (PPI) recorded a cumulative year-on-year decline of -2.9%, while the cumulative year-on-year industrial added value growth rate was 6.2%[1] - The cost per 100 yuan of revenue was 85.58 yuan, an increase of 0.19 yuan year-on-year, indicating rising costs[1] Industry Performance - The upstream mining sector continued to be the largest drag on overall industry profits, with most sectors experiencing negative profit growth except for non-ferrous metal mining[1] - The profit growth rate for the raw materials manufacturing sector improved significantly, with a cumulative year-on-year increase of 22.1%, contributing 2.5 percentage points to the overall profit growth of industrial enterprises[1] - The equipment manufacturing sector recorded a cumulative profit growth rate of 7.2%, also contributing 2.5 percentage points to overall profit growth[1] Future Outlook - The profit growth for industrial enterprises is expected to continue rising in the coming month due to an extremely low base of -27.1% from the previous year[1] - Ongoing "anti-involution" policies are expected to support price improvements in various industries, particularly in raw materials manufacturing[1] - However, downstream demand remains insufficient, and the transmission of price increases from upstream to downstream may face obstacles, necessitating policy support for demand recovery[1]

Macroeconomic Overview - The May PMI indicates persistent weakness in domestic demand, with the manufacturing PMI at 49.5%, up 0.5 percentage points from the previous month, while the non-manufacturing PMI decreased to 50.3%, down 0.1 percentage points[22] - April industrial profits showed a year-on-year increase of 1.4%, with a 3.0% growth in April alone, reflecting some structural highlights despite overall economic challenges[11] Market Dynamics - The stock market experienced a slight decline with a weekly average trading volume of 1,093.9 billion CNY, down 79.4 billion CNY from the previous week, and the Shanghai Composite Index fell by 0.03%[10] - The bond market showed slight fluctuations, with the 10-year government bond yield rising by 0.85 basis points, indicating ongoing pressure on long-term funding despite a stable short-term liquidity outlook[10] Trade and Policy Impacts - Recent U.S. trade policies, including new restrictions on AI chip exports to China, have limited market optimism, with expectations for further negotiations diminishing[1] - The U.S. International Trade Court's ruling on Trump's tariffs initially boosted market sentiment, but subsequent court actions led to renewed market weakness, highlighting the volatility in trade relations[1] Profitability Insights - April's profit growth of 2.6% compared to March reflects a 0.4 percentage point rebound, primarily driven by the "two new" policies benefiting the midstream equipment manufacturing sector[11] - The Producer Price Index (PPI) is expected to continue its downward trend, with May's decline potentially widening, indicating ongoing pressure on profit margins[13] Risk Factors - Key risks include potential further deterioration in U.S.-China trade relations and weaker-than-expected economic fundamentals, which could exacerbate existing market vulnerabilities[1]