Exchange Rate Outlook - The report predicts that the RMB may enter a medium to long-term appreciation cycle, with expectations for the USD/CNY exchange rate to break below 7.0 in 2026, potentially reaching 6.70-6.80 by the end of that year[1] - The RMB has ended a three-year depreciation cycle, with a significant appreciation expected to begin from April 2025, when the USD/CNY was at 7.42[6] Trade and Current Account - The current account surplus is expected to stabilize, driven by a recovery in merchandise trade, with a monthly surplus reaching $63.9 billion in September 2025, the highest since 2020[18] - The merchandise trade surplus has been expanding, with a single-month surplus of $72.4 billion recorded in September 2025[18] Investment Dynamics - Foreign investment in RMB-denominated assets is increasing, with a net inflow of $10.57 billion in securities investments by September 2025, reversing previous outflows[34] - Foreign investors have increased their holdings in A-shares by 622.9 billion CNY, indicating a strong interest in the Chinese equity market[42] Risk Factors - Potential risks include uncertainties in U.S. fiscal and tariff policies, unclear paths for Federal Reserve interest rate cuts, and political risks in non-U.S. regions that could lead to currency depreciation[1] - The report highlights the importance of monitoring the evolving dynamics of the U.S.-China interest rate differential, which significantly influences foreign investment behavior in Chinese bonds[51]

Key Points - The report highlights a selection of stocks for October, including companies such as China Southern Airlines (600029.SH) and Contemporary Amperex Technology Co., Ltd. (300750.SZ) [1] - The macroeconomic analysis indicates that China's foreign trade has shown strong resilience, leading to a record high in the current account surplus for the first half of the year, while the surplus as a percentage of GDP remains within internationally recognized reasonable limits [2][4] - The solid-state battery technology is identified as the next generation of power batteries for electric vehicles, with significant advantages in safety and energy density, supported by government policies [6][7] - The solid-state battery equipment market is projected to grow rapidly, with an estimated global market size of 4 billion yuan in 2024, and expected to reach 107.94 billion yuan by 2030 [7] - Shengquan Group is recognized as a leading synthetic resin enterprise in China, expanding into biomass chemicals and electronic chemicals, with a robust growth trajectory driven by increasing demand in downstream sectors [10][11] - The demand for electronic resins is expected to rise significantly due to the growth of AI servers and the ongoing domestic substitution of electronic resins [10][11] - The report notes that the global market for silicon-based anode materials is projected to reach 30 billion yuan by 2025, driven by the increasing demand for electric vehicles and energy storage [12] - Shengquan Group's proprietary biomass refining technology is highlighted for its ability to achieve high-value utilization of biomass, contributing to a complete industrial chain [13]

Core Insights - Japan's Ministry of Finance reported a current account surplus of 3.4364 trillion yen (approximately 169 billion RMB) for May, marking a 16.5% increase year-on-year and maintaining a surplus for four consecutive months [1][1][1] Trade Balance - The trade balance showed a deficit of 522.3 billion yen, with exports declining by 1.4% to 8.0344 trillion yen and imports decreasing by 7.5% to 8.5568 trillion yen [1][1][1]

Core Viewpoint - The sustainability of the private sector's net foreign assets in China is crucial for the country to transition into a mature net creditor nation, especially as the depreciation of the RMB approaches its end [1][7]. Group 1: Changes in Private Sector's Net Foreign Position - China's private sector's net foreign position has shifted from negative to positive, with a net asset of $785 billion as of Q1 2025, marking the first positive net position since 2004 [1][9]. - The private sector's net foreign liabilities increased from $3,778 billion at the end of 2004 to a peak of $23,732 billion by mid-2015, influenced by the long-term appreciation of the RMB [2][3]. - Following the "8·11" exchange rate reform in 2015, the private sector's net foreign liabilities began to decline, reaching $11,130 billion by the end of 2016, a reduction of 53% from the peak [3]. Group 2: RMB Exchange Rate Trends - The RMB has experienced a general depreciation since early 2022, with the onshore midpoint and spot rates falling by 11.3% and 12.7% respectively by the end of 2024 [5]. - In 2025, the RMB began to appreciate against the backdrop of a weakening USD, with the dollar index dropping by 10.8% in the first half of the year [5][6]. - The exchange rate fluctuations have played a significant role in adjusting the private sector's foreign liabilities, with a negative valuation effect of $5,796 billion due to the RMB's depreciation from Q2 2022 to Q1 2025 [10]. Group 3: Implications for China's Net Creditor Status - The transition to a positive net foreign position is supported by a structural trade surplus, which has been a significant factor in maintaining stable foreign exchange reserves [9][13]. - The reduction in private sector net liabilities is attributed to increased foreign asset holdings and a decrease in foreign liabilities, with a net outflow of $11,235 billion in foreign investments [9]. - If the trend of positive net foreign assets continues, 2025 could mark the year China officially becomes a mature net creditor nation, although potential risks from trade surplus fluctuations and exchange rate volatility remain [13].

Core Viewpoint - The Ministry of Finance of Japan announced on May 12 that the preliminary value of the international balance of payments for the fiscal year 2024 shows a record high current account surplus of 30.3771 trillion yen [1] Group 1 - The current account surplus reflects the status of transactions related to goods, services, and investments with overseas entities [1]

Group 1: Current Account and Trade Balance - The current account surplus increased by 61% year-on-year to $423.9 billion, accounting for 2.2% of GDP, remaining within the internationally recognized range[3] - The goods trade surplus reached a historical high of $768 billion, contributing 108% to the increase in the current account surplus[4] - Service trade deficit grew by 10% year-on-year to $229 billion, primarily driven by a 25% increase in travel service spending[5] Group 2: Capital Account and Investment Trends - The capital account deficit rose by 88% year-on-year to $486.2 billion, marking the third highest deficit since 2015[11] - Net outflow of domestic investment increased by 81% to $483.8 billion, with significant contributions from other investments and securities investments[13] - Foreign direct investment net inflow decreased to $18.6 billion, the lowest since 1993, indicating a shift in investment patterns[19] Group 3: Foreign Exchange Reserves and Market Impact - Foreign exchange reserves decreased by $35.6 billion due to short-term capital outflow pressures, marking the fourth annual net decrease since 1994[24] - The basic international balance of payments surplus increased from $89.1 billion to $270.2 billion, while short-term capital deficit rose to $332.5 billion[24] - The net foreign asset position reached $3.2958 trillion, with a significant improvement in the private sector's net foreign liabilities, which fell to $159.8 billion[29]