25 January 2026 | 9:29PM HKT Economics Research China: Three things in China Three quick highlights from China: n Q4 GDP matches expectations, December investment falls short: China's Q4 real GDP grew 4.5% yoy, resulting in full-year growth of exactly 5.0%—meeting the government's "around 5%" growth target for 2025. December data show strong production (industrial production up 5.2% year-over-year), but weak domestic demand, with retail sales rising only 0.9% year-over-year and fixed asset investment (FAI) ...

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy** and its performance in 2025, highlighting a **5% GDP growth** which aligns with previous forecasts made since June 2025 [1][4]. - The economy is characterized by a **K-shaped recovery**, indicating significant divergence in growth across different sectors [5][6]. Core Economic Indicators - **GDP Growth**: Achieved **4.5% YoY** in Q4 2025, slightly below market expectations [4]. - **Domestic Demand**: Continued to weaken, with **retail sales** growing only **0.9% YoY** in December, marking a new low outside of the COVID years [5][20]. - **Investment**: Fixed Asset Investment (FAI) declined by **3.8% YoY**, with a significant drop of **16.0% YoY** in December [5][13]. - **Exports and Production**: External demand and production supported growth, with net exports contributing **1.6 percentage points** to GDP in 2025 [5]. Policy Outlook - The growth forecast for 2026 is set at **4.7% YoY**, with expectations of **accommodative but not aggressive policies** [6]. - Anticipated measures include **RMB1 trillion** in incremental fiscal funds, **20 basis points** rate cuts, and **50 basis points** RRR cuts [6]. - A potential **RRR/rate cut** is plausible in Q1 2026, especially in light of ongoing property sector weaknesses [6]. Sector-Specific Insights - **Industrial Production**: Grew by **5.2% YoY**, driven primarily by the manufacturing sector [12]. - **New Economy Sectors**: High-tech sectors saw an **11.0% YoY** increase in industrial production, although some areas like NEVs showed signs of deceleration [14]. - **Property Sector**: No signs of stabilization were observed, with home sales in major cities still in contraction [14]. Consumer Behavior - **Household Confidence**: Remains subdued, with urban household disposable income rising **4.3% YoY** while expenditures increased only **3.8% YoY**, leading to a savings rate of **36.5%** [23][27]. - **Retail Sales Trends**: Discretionary spending showed mixed results, with significant declines in categories like home appliances and furniture, while telecom equipment sales improved [22][23]. Demographic Considerations - Birth rates in China fell sharply to **7.92 million** in 2025 from **9.54 million** in 2024, indicating potential long-term demographic challenges [7]. Conclusion - The Chinese economy is navigating a complex landscape with diverging growth patterns across sectors, necessitating careful monitoring of policy responses and consumer sentiment as it heads into 2026 [1][5][6].

Core Viewpoint - The holiday consumption trend in China is showing significant growth, with over 140 million domestic trips and nearly 85 billion yuan spent during the recent New Year holiday, indicating a strong potential for further consumption as the Spring Festival approaches [1] Group 1: Holiday Consumption Trends - Holiday consumption is expected to play a crucial role in driving domestic demand and enhancing economic growth, as highlighted in the 2025 Central Economic Work Conference [1] - There is a noticeable shift towards quality in consumption, with health-conscious food options like low-sugar pastries and organic vegetables gaining popularity [1] - The diversity of consumption scenarios is increasing, with "county tourism" gaining traction due to its cost-effectiveness and unique cultural experiences [1] Group 2: Technological and Policy Impacts - The application of digital and intelligent technologies in holiday consumption is becoming more widespread, enhancing user experience through AI and AR in travel planning and product booking [2] - The impact of policy measures is evident, with significant growth in consumption of home appliances and smart products driven by national subsidy policies [2] - Hainan's duty-free shopping saw a remarkable increase, with shopping amounts up nearly 130% and visitor numbers up nearly 61% during the New Year holiday [2] Group 3: Challenges and Recommendations - Despite the vibrant holiday consumption market, challenges such as seasonal fluctuations and supply quality issues persist, affecting consumer experience and sustainable industry growth [2] - Recommendations include implementing paid leave systems, enhancing regional holiday offerings, and innovating consumption scenarios by integrating local cultural elements [3] - Improving consumer experience through better infrastructure, digital technology, and strict enforcement against unfair practices is essential for optimizing holiday consumption [3]

Core Viewpoint - China's factory activity showed unexpected growth in December, ending an eight-month decline, driven by pre-holiday orders as officials aim to stimulate the manufacturing sector without exacerbating deflation [1]. Group 1: Economic Indicators - The official purchasing managers' index (PMI) increased to 50.1 in December from 49.2 in November, surpassing the 50-point threshold that indicates growth and exceeding the forecast of 49.2 [2]. - The production sub-index rose to 51.7 from 50.0 in November, while new orders increased to 50.8 from 49.2, marking the strongest performance since March [4]. - Supplier delivery times improved, leading to a rise in the production and activity expectations component to 55.5, the highest since March 2024 [4]. Group 2: Sector Performance - New export orders remained weak, increasing slightly to 49.0 from 47.6 in November, highlighting the necessity for officials to enhance domestic demand and reduce reliance on U.S. demand [5]. - Confidence in the manufacturing sector appears to be improving due to pre-holiday stockpiling, particularly in the agricultural, food processing, and food and beverage sectors [6]. Group 3: Challenges and Outlook - Despite the positive PMI data, experts suggest that the improvement may be short-lived, driven by month-to-month fiscal spending fluctuations rather than a sustained recovery, with structural challenges from the property downturn and industrial overcapacity expected to persist into 2026 [3]. - Domestic demand remains depressed, as indicated by a 13.1% year-on-year decline in profits for Chinese industrial firms in November, the steepest drop in over a year, suggesting that households are not compensating for the shortfall amid a slowing global economy [7].

Economic Growth and Consumer Demand - The economy is expected to grow at about 7% in the second quarter, supported by a spending surge following the implementation of lower GST rates on September 22 [2][10] - The third quarter is anticipated to be driven by consumer demand, particularly due to the festive and wedding season, with wedding-related expenditures estimated at ₹4.5-5 lakh crore [10][12] - Urban consumption has shown signs of recovery due to tax cuts, although it has been weak since last year [10][12] GST Impact and Economic Indicators - GST collections rose 4.6% year-on-year in October, reaching a five-month high of ₹1.96 lakh crore, indicating robust domestic demand [6][12] - The HSBC Manufacturing Purchasing Managers' Index (PMI) increased to 59.2 in October, reflecting strong domestic demand post-GST cuts [6][12] - Bank credit rose 11.5% year-on-year in mid-October, suggesting strong traction at the start of the festive season [12] Automotive and Consumer Durables Market - Approximately 470,000 cars, sedans, and SUVs were sold in October, marking a 17% increase from the previous year [7][12] - The waiting period for consumer durables has increased due to heightened demand, with estimates suggesting it may take 45 days for supply to normalize [7][12] Rural vs Urban Demand - Rural demand continues to support India's growth, with economists optimistic about its sustainability [9][12] - Urban demand remains a concern due to slower wage growth, which could impact overall consumption momentum [9][10] Global Economic Factors - US tariffs and a global growth slowdown may negatively affect services exports and hiring [11] - However, uncertainties related to tariffs and rising costs abroad could potentially benefit India's services sector through increased offshoring [11]

Market Trends - Domestic demand is surging [1] - Indian generics could make slimming cheaper worldwide [1]

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The focus is shifting towards domestic demand in China due to a 90-day tariff truce between the US and China, while export performance remains under observation [2] - High-frequency indicators have been introduced to track property market trends and government expenditure [2] Summary by Relevant Sections Exports - June container forward prices are double the spot rate, indicating potential volume growth despite a slight drop in export indicators such as imports from Korea and shipping volumes [4] - Export growth is expected to slow in May before a potential recovery in June [4] Property Sector - Mixed signals are observed in the property sector, with new home sales slightly down compared to 2024, while secondary market transaction volumes have increased [4] - Land sales have surged by approximately 35% in May compared to the same period in 2024, which may support new home construction [4] - Local governments are issuing special Local Government Bonds (LGBs) to purchase idle land, although the scale is smaller than in 2018-2019 [4] Fiscal Spending - Net CGB funding has reached 40% year-to-date, significantly higher than the average of 26% over the past three years [4] - Total government spending has increased by 7.2% year-on-year, surpassing the average growth of 4% over the past three years [4] - The robust fiscal spending is expected to cushion against external economic challenges and maintain resilient domestic demand [4]