Group 1: Economic Goals and Policies - The GDP growth target for 2026 is set between 4.5% and 5.0%, marking the first downward adjustment since 2023, reflecting a pragmatic understanding of economic realities[6] - The budget deficit rate is maintained at around 4%, with a broad deficit rate estimated at approximately 7.9%, consistent with last year's 8.0%[12] - The report emphasizes a shift towards a more positive price target, aiming for a moderate recovery in consumer prices, with expectations for the CPI to remain in positive growth territory throughout the year[12] Group 2: Domestic Demand and Investment - The government plans to utilize 800 billion yuan in new policy financial tools to support domestic demand, compensating for the investment squeeze from local special bonds[6] - Central budget investment is set at 755 billion yuan, an increase of 20 billion yuan from last year, while traditional demand expansion tools remain stable[14] Group 3: Environmental and Technological Goals - The carbon emission reduction target for 2026 is set at 3.8%, with a cumulative reduction goal of 17% for the entire "14th Five-Year Plan" period, indicating a challenging path ahead[16] - The report highlights the importance of original innovation and industrial integration, aiming to establish a world-class technology innovation hub and support key technological breakthroughs[17] Group 4: Social Policies and Risk Management - Employment policies will continue to include measures like wage subsidies and special loans, while also preparing for new job creation in emerging industries[18] - The report addresses risk management in key areas such as real estate and local government debt, emphasizing the need to mitigate operational debt risks for financing platforms[18]

Group 1 - The crisis in the Middle East, particularly the conflict with Iran, raises concerns about its impact on global trade and market stability, with differing opinions on its significance [1][2] - U.S. Energy Secretary Chris Wright views the situation as a manageable issue for achieving military objectives, while IMF's Kristalina Georgieva warns of prolonged economic uncertainty [1][2] - Market reactions are mixed, with Asian shares rising, particularly in South Korea, while oil and gold prices continue to increase amid ongoing tensions [3] Group 2 - China's National People's Congress has commenced, announcing a slightly slower growth target aimed at economic rebalancing and increased consumption, positively affecting the stock market [4] - European and U.S. stock futures initially showed gains but later indicated potential declines as markets prepared to open [4] - Key economic indicators to watch include Euro zone retail sales, industrial output data from France, and U.S. jobless claims and productivity data [4]

Core Viewpoint - The shifting U.S. policy towards China reflects the growing economic disparity, with China's GDP surpassing that of the U.S. by a significant margin, leading to a reevaluation of military and economic strategies [2][5][12]. Economic Comparison - By 2025, China's GDP is projected to reach 41 trillion USD, while the U.S. GDP is expected to be 30 trillion USD, indicating that China's economic scale is now more than 1.3 times that of the U.S. [3][5]. - China's manufacturing output is reported to be over four times that of the U.S., showcasing a substantial lead in industrial capabilities [5][12]. Military and Strategic Adjustments - The U.S. military strategy has shifted to view China as a near-peer competitor rather than a primary threat, focusing on economic and diplomatic engagement instead of military confrontation [9][14]. - The Pentagon's 2025 report emphasizes the importance of economic competition and cooperation in the Indo-Pacific region, moving away from a purely militaristic approach [10][14]. Trade and Cooperation - The economic interdependence between the U.S. and China is highlighted, with China being a significant market for U.S. technology, and the U.S. easing some export restrictions on high-end chips to China [20]. - The Trump administration's approach has evolved from confrontation to a more pragmatic strategy aimed at economic rebalancing, recognizing the limitations of military power in addressing the challenges posed by China [20]. Industry-Specific Insights - In the shipbuilding industry, China's production capacity vastly outstrips that of the U.S., with China delivering 51.81% of global ship orders by 2025, compared to the U.S.'s minimal output [7]. - The U.S. shipbuilding costs are reported to be two to three times higher than the global average, indicating inefficiencies that hinder competitiveness [7]. Future Outlook - The ongoing dialogue between the U.S. and China, including planned high-level meetings, suggests a potential for increased cooperation despite existing tensions [18]. - The recognition of mutual economic benefits indicates a shift towards a more collaborative approach, with both nations needing to respect each other's positions to address shared concerns [20].

Global Macro Strategy - The report highlights a global economic rebalancing driven by various factors including increased fiscal expansion in the US, Japan, and Europe, and China's focus on stabilizing real estate and promoting consumption [1][2] - The US economy is expected to see GDP growth decrease from 2.2% last year to 2% this year, with PCE inflation projected to drop from 2.5% to 2.3% [1][4] - The report anticipates that risk assets may reach new highs, with cyclical and value stocks outperforming tech and growth stocks [1][2] United States - The US housing market is expected to see an increase in sales volume while prices remain stable, with existing home sales projected to grow by 10% and new home sales by 5% in 2026 [7] - The fiscal deficit is projected to rise from 5.4% last year to 6.2% this year, with significant tax cuts expected to stimulate the economy [11] - The report predicts that the Federal Reserve will only cut rates once in June, with the 10-year Treasury yield expected to rise from 4.18% to 4.3% by year-end [12][14] United Kingdom - The UK economy is expected to experience a slight slowdown, with GDP growth forecasted to decrease from 1.4% last year to 1.2% this year [19][20] - The unemployment rate is projected to rise from 4.4% to 5.1% as the job market cools, while wage growth is expected to normalize [20] - The report anticipates that the Bank of England will cut rates twice in 2026, bringing the policy rate down to 3.25% [24] Eurozone - The Eurozone's GDP growth is expected to slow from 1.4% last year to 1.2% this year, with inflation projected to stabilize around the target level [1][2] - The report indicates that the European Central Bank's rate-cutting cycle has ended, with policy rates expected to remain unchanged [1][2] Japan - Japan's GDP growth is forecasted to decline significantly from 1.3% last year to 0.7% this year, with inflation also expected to decrease [1][2] - The report suggests that the Bank of Japan may raise rates twice, with the 10-year government bond yield expected to rise from 2.07% to 2.45% [1][2] China - China's GDP growth is projected to slow from 5% last year to 4.6% this year, with a focus on stabilizing the real estate market and promoting consumption [1][2] - The report anticipates that the People's Bank of China will implement two rate cuts totaling 20 basis points and one reserve requirement ratio cut of 50 basis points [2]

Group 1 - Local governments have lowered growth targets, reflecting a more pragmatic approach rather than a pessimistic sentiment, allowing for greater flexibility in balancing growth and quality [1] - The overall weighted average national growth target remains around 5.1%, indicating that a target of "around 5%" is still reasonable amidst more pragmatic local goals [2] - Even if the national target is set at 4.5%-5%, it does not imply a weakening of policy stance; rather, it alleviates pressure from relying on investment and supply-side policies [3] Group 2 - The narrative around real estate has become more relaxed, with reports indicating that property companies no longer need to report "three red lines" indicators monthly, suggesting a symbolic easing of constraints [3] - Future policies are expected to be small-scale attempts to prevent overshooting rather than aggressive stimulus measures, with targeted demand-side policies anticipated to manage the adjustment pace in real estate [4] - The economic fundamentals at the start of the year are stable but not strong, with significant government bond issuance and high rebar shipment volumes indicating a solid start [5] Group 3 - Export performance remains resilient, with container throughput stable, suggesting a steady export growth rate for January [10] - Consumer spending is lagging, with a notable decline in passenger car sales and weak year-on-year appliance sales, indicating limited support for consumption [12]

Report Summary 1. Report Industry Investment Rating - Not provided in the given content. 2. Core Viewpoints - China's economic rebalancing and global liquidity easing are expected to support stocks, commodities, and EM currencies in 1H26, but may face challenges in 2H26 if US inflation resurges [3][11][17]. - The convergence of China's economic rebalancing and global liquidity easing is likely to bolster risky assets throughout 1H26, while the outlook for 2H26 is more cautious [17]. 3. Summary by Relevant Catalogs Trading Desk Comments - In the Chinese IG space, MEITUA and KUAISH had balanced two - way flows, with slightly better selling on 10yr issues; ZHOSHK tightened 1bp; ORIEAS/CCAMCL papers with <5yr tenor tightened 1 - 3bps [2]. - In HK, FRESHK curve tightened 3 - 5bps; BNKEA T2s traded mixed; NWDEVL/VDNWDL complex surged 0.7 - 7.3pts; LASUDE 26 rose 0.9pt; FAEACO 12.814 Perp was 0.5pt higher; EHICAR 26 dropped 1.4pts [2]. - In Chinese properties, VNKRLE 27 - 29 rose 1.5 - 1.8pts; SHUION 29/DALWAN 28 gained 0.4pt; DALWAN priced USD360mn new bond; LNGFOR 27 - 32/FUTLAN 28/FTLNHD 26 - 27 rose 0.3 - 1.2pts [2]. - In KR space, HYUELE 29s tightened 4bps; AU and JP fixed - rate IG credits squeezed 1 - 2bps tighter; JP bank FRNs tightened 1 - 2bps; JP insurance subs remained better offered; there were decent two - way flows in Yankee AT1s [2]. - In SE Asian space, BBLTB T2s tightened 2 - 3bps; GLPSP Perps rose 1.1 - 1.3pts; VEDLN 28 - 33s were unchanged to 0.4pt higher; INDYIJ 29 lost 0.4pt; MEDCIJ 26 - 30s were unchanged to 0.2pt lower [2]. - In the Middle Eastern space, long - end KSAs lost 0.1 - 0.3pt; SNBAB 6.15 Perp was 0.1pt lower; SECO 36 tightened 1bp; ARAMCO attracted better buying but closed largely unchanged [2]. Macro News Recap - On Thursday, S&P (-0.13%), Dow (+0.11%), and Nasdaq (-0.72%) were mixed; US latest initial jobless claims were +209k, higher than the market expectation; UST yield was lower, with 2/5/10/30 - year yield at 3.53%/3.80%/4.24%/4.85% [6]. Desk Analyst Comments - Regarding NWDEVL/VDNWDL, media reported Blackstone in advanced discussions to become NWD's largest shareholder; NWD confirmed potential investors approached, but no agreement reached; Cheng's family owns c45% of NWD [7]. - Cheng's family reshuffled group entities: transferred c54% of CTF Jewellery to Beyond Luck Limited; increased stakes in CTFH by 9.49% to 90.52%; CTFE to sell Alinta Energy to Sembcorp for AUD6.5bn (cUSD4.3bn) [8]. - Maintain buy on VDNWDL 9 Perp due to higher certainty of coupon payments; expect more corporate actions for NWDEVLs [9]. China Policy: Signals for Economic Rebalancing - China's policymakers signaled a pivot to "boosting domestic demand" in 2026 to address economic imbalance [10]. - Demand - side policies focus on stabilizing the property market and stimulating consumption; supply - side policies aim to address overcapacity; trade - side policies employ a four - pronged approach [10]. - The rebalancing process may lead to a GDP growth target reduction to 4.5% - 5% in 2026, but is structurally positive [10]. Offshore Asia New Issues - Issued: Dalian Wanda issued USD360mn 2 - yr bond at 12.75% coupon; First Abu Dhabi Bank PJS issued USD750mn 5 - yr bond at SOFR+75; Muthoot Finance issued USD600mn 4.5 - yr bond at 5.75% coupon [19][20]. - Pipeline: No offshore Asia new issues pipeline on this day [20]. News and Market Color - 101 credit bonds were issued yesterday in onshore primary issuances, amounting to RMB82bn; month - to - date, 1,920 credit bonds were issued with RMB1,652bn raised, a 13.5% yoy increase [25]. - Adani Group plans to raise up to cUSD1.5bn in JPY - denominated bonds and loans [25]. - China Overseas Grand Oceans and Yuexiu Property propose to issue 3 - yr dim sum bonds [25]. - China Vanke to make partial payment for 21Wanke02 onshore bonds on 30 Jan'26 [25]. - West China Cement's proposed acquisition of AfriSam Holdings has a consideration of USD150mn [25].

Macro Commentary - Chinese policymakers are signaling a strategic shift to prioritize domestic demand as the primary economic task by 2026, addressing issues like overcapacity, deflationary pressures, and weak confidence [2] - Demand-side policies will focus on stabilizing the real estate market and boosting consumption through measures such as lowering mortgage rates and purchasing unsold properties [2] - Supply-side policies will aim at structural adjustments, enhancing industry concentration by curbing capacity expansion and encouraging mergers and acquisitions [6] Market Performance - The Hang Seng Index closed at 27,968, up 0.51% for the day and 9.12% year-to-date, while the Hang Seng Tech Index fell by 1.00% [3] - The Chinese stock market saw gains, particularly in real estate, consumer staples, and financial sectors, with net inflows of 4.374 billion HKD from southbound funds [5] - The U.S. stock market experienced a pullback, with technology, consumer discretionary, and materials sectors leading the decline, while communication services, real estate, and energy sectors gained [5] Company Insights - Meta (META US) reported a 24% year-on-year revenue increase to 59.9 billion USD for Q4 2025, driven by AI-enhanced advertising growth, and provided a revenue guidance of 53.5-56.5 billion USD for Q1 2026 [6] - Microsoft (MSFT US) achieved 16.7% revenue growth to 81.3 billion USD in Q2 FY26, with strong performance in productivity and business processes, and provided a target price of 614.6 USD [6] - ServiceNow (NOW US) reported a 21% revenue increase to 3.57 billion USD for Q4 2025, with a positive outlook for FY26 driven by AI efficiencies, maintaining a target price of 215.0 USD [7][8] - Sunny Optical Technology (2382 HK) expects a 70-75% increase in net profit for 2025, driven by high-end camera upgrades and growth in automotive and smart glasses segments, with a target price of 91.38 HKD [8]

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - This week, domestic commodities rebounded again, with both industrial and agricultural products rising. The main reasons include geopolitical risks, the acceleration of de - dollarization, the rise of anti - involution expectations, and the cold wave driving up energy prices [3]. - In 2025, China achieved a 5% growth target, but faced downward pressure in the second half of the year. In 2026, domestic economic growth may be driven by economic re - balancing, with domestic demand expected to improve, and policies will continue to support economic growth [3]. - The IMF raised China's economic growth rate forecast for 2025 by 0.2 percentage points to 5% and for 2026 by 0.3 percentage points to 4.5%, and also raised the global economic growth forecast for 2026 to 3.3% [3][23][24]. - Multiple factors are driving the rebound in the commodity market, including the rift between the US and its allies, the pre - emptive fiscal policy, and the geopolitical situation and cold wave [3]. 3. Summary by Directory PART ONE: Main Viewpoints - **Domestic Commodity Market**: This week, domestic commodities rose. Geopolitical risks and de - dollarization led to the rise of gold and silver, anti - involution expectations drove up new energy metals, and the cold wave pushed up energy prices, causing the energy and chemical sectors to rebound [3]. - **Overseas Situation**: - US: The December 2024 existing - home sales index dropped significantly, affected by inventory shortages and rising mortgage rates. Trump mentioned potential candidates for the new Fed chair. The US threatened to impose tariffs on eight European countries and then postponed the decision [3]. - Japan: The Prime Minister announced the dissolution of the House of Representatives and an upcoming election, and proposed an expansionary fiscal policy, which triggered market concerns and led to a sell - off of Japanese government bonds [3]. - **Domestic Situation**: In 2025, China achieved a 5% growth target, but faced downward pressure in the second half. In 2026, economic re - balancing may drive growth, and policies will continue to support the economy. The IMF raised China's economic growth forecast, and the government announced fiscal and financial policies to boost domestic demand [3]. - **Commodity Market Viewpoint**: Multiple factors are driving the rebound in the commodity market, including the rift between the US and its allies, the pre - emptive fiscal policy, and the geopolitical situation and cold wave [3]. PART TWO: Overseas Situation Analysis - **US Real Estate**: The December 2024 existing - home sales index dropped 9.3% month - on - month and 1.3% year - on - year, the largest decline since April 2020 and the largest for December since 2001. Inventory shortages and rising mortgage rates are the main factors [3]. - **Fed Chair Candidate**: Trump mentioned that the list of candidates for the new Fed chair has been narrowed down, and he hopes the new chair will be like Greenspan [3]. - **Japan's Fiscal Policy**: The Japanese Prime Minister announced the dissolution of the House of Representatives and an expansionary fiscal policy, which led to a sell - off of Japanese government bonds [3]. - **US - Europe Trade**: The US threatened to impose tariffs on eight European countries and then postponed the decision, but the implementation of the agreement is still uncertain [3]. PART THREE: Domestic Situation Analysis - **Economic Growth**: In 2025, China achieved a 5% growth target, but faced downward pressure in the second half. In 2026, economic re - balancing may drive growth, and domestic demand is expected to improve [3]. - **IMF Forecast**: The IMF raised China's economic growth rate forecast for 2025 by 0.2 percentage points to 5% and for 2026 by 0.3 percentage points to 4.5%, and also raised the global economic growth forecast for 2026 to 3.3% [3][23][24]. - **Fiscal Policy**: In 2026, the fiscal deficit, debt, and expenditure will remain at necessary levels, and the government announced fiscal and financial policies to boost domestic demand [3]. PART FOUR: High - Frequency Data Tracking - **Industrial Data**: Data on the start - up rates of the polyester industry chain and blast furnaces are presented, showing the operating conditions of related industries [31][32]. - **Agricultural Product Data**: Data on the average wholesale prices of fruits, vegetables, and pork, as well as the Agricultural Product Wholesale Price 200 Index, are provided [44].

Summary of Conference Call Notes Industry/Company Involved - **Industry**: Asia Pacific Economics - **Focus**: Chinese Economy and RMB (Renminbi) Appreciation Core Points and Arguments 1. **RMB Appreciation and Economic Rebalancing**: The report argues against the prevailing market view that RMB appreciation will aid in rebalancing the Chinese economy. It suggests that significant appreciation would hinder deflationary clearing, compress corporate profit margins, and slow wage growth. Sustainable rebalancing requires substantial fiscal easing to boost consumption [1][3][7] 2. **Limited RMB Appreciation**: The report posits that RMB appreciation will be more constrained than the emerging consensus suggests. It emphasizes that appreciation would not alleviate deflationary pressures or contribute to economic rebalancing [3][7] 3. **Investor Sentiment**: There is a growing optimism among investors regarding the RMB, with many expecting significant appreciation. However, the report challenges this view, stating that the macroeconomic environment remains challenging and that fiscal policy is necessary for sustainable rebalancing [7][8] 4. **Policy Signals**: The Chinese economic research team anticipates that the official CFETS RMB index will remain stable within a range, projected to be between 98-99 by the end of 2026 and reaching 100 by the end of 2027. Policymakers are not inclined to allow a sustained appreciation of the RMB [8][9] 5. **Trade Surplus and External Balance**: A strong external balance supports the mild appreciation of the RMB. The report notes that China's trade surplus as a percentage of GDP has increased by 1.6 percentage points to 6.1% over the past two years, driven by a rise in exports and a decline in imports [16][18] 6. **Current Account Surplus**: The current account surplus is expected to remain relatively high at 2.9% and 3.1% of GDP for 2026 and 2027, respectively, significantly above historical levels [23] 7. **Weak Domestic Demand**: The report highlights that the current account surplus is partly due to weak domestic demand, with structural population decline since 2019 leading to a downturn in the real estate market and persistent deflationary pressures [21][27] 8. **Historical Context**: The report draws parallels with Japan's experience in the 1990s, where significant currency appreciation did not lead to economic rebalancing but rather exacerbated deflationary pressures and weakened export competitiveness [32][41] 9. **Policy Preferences**: The report indicates that policymakers prefer investment over consumption as the main growth driver, viewing investment as a means to create tangible assets. This preference, combined with limited fiscal resources, poses challenges for achieving sustainable rebalancing [41][42] 10. **Long-term Outlook**: The report anticipates that China will continue to strengthen its competitive advantage in advanced manufacturing sectors, with expectations of maintaining a robust export growth rate of 5-6% in the coming years [19][23] Other Important but Possibly Overlooked Content - **Impact of Deflation**: The report emphasizes that allowing significant RMB appreciation could reinforce negative price-wage dynamics, further weakening corporate profit growth and consumer spending [27][30] - **Social Security Concerns**: The report notes that addressing the lack of a comprehensive social security system, particularly for migrant workers, is crucial for improving consumption and economic stability [42] - **Global Market Share**: China's global goods export market share is projected to increase from approximately 15% to 16.5% by 2030, reflecting its ongoing competitiveness in the global market [19]

Core Viewpoint - The depreciation of the real effective exchange rate and the expansion of trade surplus are currently seen as important reasons for a bullish outlook on the RMB. However, historical trends and comparisons with the JPY/USD exchange rate suggest these reasons may not hold true. The RMB's appreciation should not be used as a policy tool for economic rebalancing, as it contradicts the principle of macro policy consistency and may trigger panic among private sectors [2][3][35]. Group 1: Exchange Rate Trends - Since late November 2025, both onshore and offshore RMB exchange rates have shown a rapid appreciation, with the midpoint and trading prices rising to around 7.0, marking a cumulative increase of nearly 2% for the midpoint and over 4% for trading prices [2][35]. - The real effective exchange rate (REER) of the RMB has declined significantly, dropping 16.7% since March 2022, while the JPY has seen a similar decline of 17.1% during the same period [4][37]. - The recent trends in the JPY/USD exchange rate have not aligned with expectations based on the declining REER and narrowing interest rate differentials, indicating that multiple factors influence exchange rates [8][42]. Group 2: Trade Surplus and RMB Valuation - In the first 11 months of 2025, China's trade surplus reached $1,075.9 billion, an increase of 21.4% compared to the previous year, despite a decline in exports to the US [12][43]. - Historical data shows no simple linear relationship between trade surplus and RMB exchange rate movements, with instances where trade surplus increased while the RMB depreciated [16][47]. - The expansion of trade surplus is not a reliable predictor of RMB appreciation, as evidenced by various years where trade surplus growth coincided with RMB depreciation [16][48]. Group 3: Historical Context of RMB Policy - Following the 2008 global financial crisis, China implemented policies aimed at reducing trade surplus and promoting balance, resulting in a significant appreciation of the RMB due to structural adjustments and increased domestic demand [19][51]. - The relationship between the RMB's real effective exchange rate and China's external balance has shifted from a strong negative correlation (2008-2013) to a weak positive correlation (2014-2024), indicating a change in the effectiveness of leverage in driving investment [27][58]. - The RMB's depreciation in recent years reflects ongoing trade tensions and economic cycles, with the Chinese government emphasizing stability in the exchange rate to prevent rapid depreciation [29][60].