6 February 2026 | 10:05PM HKT Economics Research CHINA MATTERS Lessons Learned from the Last Year We reflect on the macro data and policies we have followed closely over the past year and draw five lessons in this note. These five lessons from the past year have four implications for investors this year. c45a43530f604d12bcb9a82b5aa6b9f6 n First, data quality issues in some official series have become more significant, as seen in the quarter-end pattern of the NBS Manufacturing PMI and the double-digit decli ...

Keppel Ltd. (OTC:KPELY) reported an EPS of $0.55, surpassing the estimated $0.41, indicating higher profitability per share than expected.The company's revenue of approximately $2.6 billion fell short of the estimated $2.8 billion, raising concerns about its market expectations fulfillment.Keppel's price-to-earnings (P/E) ratio stands at approximately 53.19, suggesting high investor expectations for future growth.Keppel Ltd. (OTC:KPELY) is a diversified company involved in various sectors, including offshor ...

Southbound saw net outflow of US$0.2bn during January 22-28: the first weekly outflow since mid-May 2025. YTD and MTD net inflows both hit US$8.1bn. *Note: As announced on July 26, 2024, by HKEX, Shanghai Stock Exchange, and Shenzhen Stock Exchange, the publication of Northbound daily purchase and sales data was terminated as of August 19, 2024. Northbound daily buying and selling data were last made available on August 16, 2024. Excitement over the housing market could be short-lived, according to MS China ...

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Economic Activity** and provides insights into various sectors including **consumption, mobility, production, investment, and macroeconomic policies** [1][3][21][36]. Core Insights and Arguments 1. Consumption and Mobility - **Property Transactions**: The daily property transaction volume in the primary market across 30 cities was significantly lower compared to the levels observed around the previous year's Chinese New Year (CNY) [4][9]. - **Traffic Congestion**: Traffic congestion has increased over the last two weeks, aligning with last year's CNY patterns, indicating a potential recovery in mobility [11][13]. - **Rental Yield**: There has been a gradual improvement in rental yields in large cities, while the yield on 30-year Chinese government bonds (CGB) has also increased [17] . 2. Production and Investment - **Steel Demand**: Steel demand has slightly decreased but remains above the levels from a year ago, indicating stable industrial activity [21]. - **Coal Consumption**: Daily coal consumption in coastal provinces has risen above last year's levels, likely due to colder-than-normal weather conditions [26]. - **Local Government Bonds**: A total of **RMB 323 billion** in local government special bonds have been issued year-to-date, reflecting ongoing investment in infrastructure and public projects [27]. 3. Other Macroeconomic Activity - **Port Activity**: Official port container throughput has increased over the last two weeks, suggesting a rebound in trade activity [38]. - **Freight Volume**: The freight volume of departing ships at 20 major ports has decreased compared to last year, indicating potential supply chain challenges [40]. - **Soybean Exports**: US soybean export sales to China have increased further in January 2026, highlighting ongoing agricultural trade dynamics [43]. 4. Markets and Policy - **Interbank Repo Rates**: Interbank repo rates have edged down over the last week, indicating a potential easing of liquidity in the financial markets [51]. - **Oil Demand**: The nowcast indicates that China's oil demand has declined to **17.1 million barrels per day (mb/d)** in the latest reading, reflecting changes in consumption patterns [53]. - **Policy Announcements**: A series of macro policy announcements have been made since October 2025, including interest subsidies for bank lending to SMEs and a reduction in minimum mortgage down payments for commercial properties [58]. Additional Important Information - **Secondary Home Prices**: Secondary home prices have continued to decline, with Beike suspending the release of secondary home prices in December 2023, indicating a cooling property market [15][20]. - **Investment Targets**: The share of local government bond proceeds spent in "Others" may include repayments for corporate arrears and delayed salaries to civil servants, reflecting fiscal pressures [31][32]. This summary encapsulates the key points from the conference call, providing a comprehensive overview of the current economic landscape in China and its implications for various sectors.

Economic Growth and Trade - China's economy grew by 5.0% in the previous year, achieving the government's target by capturing a record share of global demand for goods to compensate for weak domestic consumption [1] - The trade surplus reached a record $1.2 trillion, which is 20% higher than in 2024, equivalent to the size of a top 20 economy like Saudi Arabia [2] - Shipments to the U.S. decreased by 20%, while exports to other global markets increased significantly, indicating a shift in focus for Chinese manufacturers [3][4] Domestic Economic Challenges - Despite the success in exports, there is a persistent weakness in the domestic economy, with industrial output rising by 5.9% compared to retail sales growth of only 3.7%, and property investment declining by 17.2% [5] - Analysts warn that unless resources are redirected towards boosting consumer spending, future economic growth may slow sharply, with a projected growth rate of 4.5% for 2026 [6] Long-term Sustainability of Trade Surplus - Relying on exports for long-term growth is not sustainable; if the trade surplus continues to grow at the same rate, it could match France's $3 trillion economy by 2030 and Germany's $5 trillion output by 2033 [7] - There are concerns about the potential for a wider protectionist backlash abroad if the trade surplus expands indefinitely at the current rate [8]

Core Viewpoint - The integration of digital and green technologies, termed "dual transformation," is becoming a key pathway for upgrading urban industrial chains by enhancing efficiency and reducing carbon emissions [2][4]. Group 1: Dual Transformation in Urban Development - The "14th Five-Year Plan" has shifted urban development from scale expansion to quality enhancement, emphasizing a people-centered approach [3]. - The upcoming "15th Five-Year Plan" aims to accelerate new urbanization, focusing on quality improvements and sustainable development [3]. - The dual transformation is identified as a mainstream trend for urban industrial chain upgrades by 2025, driven by the deep integration of digital and green technologies [3][4]. Group 2: Impact on Traditional Industries - Dual transformation is crucial for transitioning traditional industries from carbon-intensive practices to low-carbon, innovative models, supporting the achievement of carbon neutrality goals [4][5]. - The report highlights that dual transformation enhances production efficiency and product quality by promoting precise allocation of resources and transitioning to circular, low-carbon production modes [4][5]. - Key sectors, such as automotive and steel, are increasingly adopting digital carbon management systems, with over 60% of automotive manufacturers and 40% of steel production capacity utilizing these technologies [5]. Group 3: Real Estate Sector Transformation - Real estate companies are shifting from mere developers to comprehensive operators of digital and green urban spaces, focusing on operational efficiency and shared industry value [6][7]. - The integration of sustainability and digital capabilities into corporate strategies is essential for enhancing cash flow resilience and asset valuation [6][7]. Group 4: Smart Cities and Computing Power - The development of smart cities and the enhancement of computing power efficiency are critical for achieving low-carbon upgrades in industrial chains [8][10]. - Smart cities leverage advanced technologies like IoT and AI to improve urban planning and management, while the demand for data processing drives the need for efficient computing infrastructure [9][10]. - Successful models, such as Shenzhen's smart city initiative, demonstrate the potential for low-carbon industrial clusters and energy-efficient data centers [10][11]. Group 5: Future Directions - The dual transformation should be central to future industrial development, emphasizing technological innovation and collaborative mechanisms [11][12]. - Continuous efforts are needed to optimize policies and enhance the synergistic effects of smart city construction and computing power efficiency, driving industries towards higher efficiency, sustainability, and intelligence [11][12].

Company Developments - iRobot (IRBT) has filed for bankruptcy protection and will go private after being acquired by its primary manufacturer [3] - SpaceX (SPACE) is in the process of selecting investment banks for a potential IPO, targeting a valuation of up to $1.5 trillion [5] - SpaceX has initiated a secondary share sale valuing the company at $800 billion, with shares priced at $421 each [6] - Alphabet (GOOG) stands to gain significantly from its investment in SpaceX, with an expected accounting gain linked to its stake [7] Industry Insights - Concerns over China's property sector have resurfaced as Vanke's bondholders rejected its bond payment plan, increasing default risks [4] - The tech trade between the US and UK is at risk of collapse due to disagreements [8] - Developers have canceled nearly 2,000 power projects this year, indicating potential shifts in the energy sector [8]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Economic Activity** and various macroeconomic indicators, including consumption, production, investment, and market policies [1][2]. Consumption and Mobility - **Property Transactions**: The daily property transaction volume in the primary market across 30 cities has decreased over the last two weeks and remains below last year's levels [3][8]. - **Traffic Congestion**: Traffic congestion levels are reported to be below those of the previous year, indicating reduced mobility [9][11]. - **Consumer Confidence**: Consumer confidence has remained depressed as of October, reflecting ongoing economic concerns [14]. - **Auto Sales**: Total auto sales volume has edged lower in November, falling below the levels seen in 2024, while new energy vehicle (NEV) sales have increased and remain above 2024 levels [15][19]. Production and Investment - **Steel Demand**: There has been a decrease in steel demand, which is currently below last year's levels [22]. - **Steel Production**: Steel production has also fallen over the last two weeks, remaining below last year's levels [25]. - **Coal Consumption**: Daily coal consumption in coastal provinces is reported to be below last year's levels [26]. - **Local Government Bonds**: RMB 4.5 trillion in local government special bonds have been issued out of a total quota of RMB 4.6 trillion for 2025, indicating a high issuance rate of 98.8% of the annual quota [28][29]. Other Macro Activity - **Port Activity**: Official port container throughput has decreased over the last two weeks but remains above the levels from a year ago [41]. - **Freight Volume**: The freight volume of departing ships at 20 major ports has increased over the last two weeks, surpassing last year's levels [44]. Markets and Policy - **Interbank Repo Rates**: These rates have remained largely stable over the last two weeks, indicating a steady liquidity environment [49]. - **Oil Demand**: The nowcast indicates that China's oil demand has declined to 17.7 million barrels per day in the latest reading [51]. - **Currency Movements**: The Chinese Yuan (CNY) has appreciated against the USD but depreciated slightly against the CFETS basket in recent weeks [56]. - **Policy Announcements**: Key macro policy announcements since September include a pro-growth policy stance suggested by the Central Economic Work Conference and measures to promote consumption and private investment [57]. Additional Insights - The report highlights a shift in data sources for traffic congestion from Gaode map to Baidu map, which may affect the comparability of data going forward [11]. - The "Others" category in local government bond proceeds spending has become the largest share, potentially indicating a focus on repayment for corporate arrears and delayed salaries [36]. This summary encapsulates the critical insights from the conference call, providing a comprehensive overview of the current economic landscape in China.

Summary of Key Points from J.P. Morgan's China Credit 2026 Outlook Industry Overview - **China Credit Market**: The report emphasizes a selective approach to investing in China credits, highlighting a spectrum of risk from high-quality TMT (Technology, Media, and Telecommunications) companies to solid SOEs (State-Owned Enterprises) and struggling property firms [1][5][10]. Core Insights Economic Outlook - **2025 Growth**: The Chinese economy is projected to grow approximately 5% year-on-year in 2025, supported by strong exports and fiscal expansion despite high U.S. tariffs [5][10]. - **2026 Forecast**: A slowdown to 4.4% growth is anticipated in 2026 due to weaker exports and consumption, with real estate investment expected to contract by 10% [5][11]. China TMT Sector - **Top Picks**: J.P. Morgan recommends Alibaba '35s/'54s and Weibo '30s as top picks due to their solid balance sheets and improving fundamentals [1][5][66]. - **Investment Cycle**: TMT companies are in a heavy investment cycle focusing on AI and new initiatives like food delivery, with Alibaba aggressively expanding its market share [29][30]. - **Competitive Landscape**: Intense competition in food delivery is noted, particularly with Alibaba's expansion impacting Meituan's profitability [30][68]. China SOE Sector - **Defensive Exposure**: China National Chemical is recommended for defensive exposure, with strong demand expected to absorb any potential spread widening from U.S. sanctions [5][66]. - **Spread Compression**: SOE credits have seen significant spread compression, with the JACI China single-A Corporate Index tightening to a 10-year low [78][79]. China Property Sector - **Cautious Sentiment**: The property market remains fragile, with Vanke's bond extension raising concerns. Longfor is the only company rated as Overweight due to its solid balance sheet and transformation to a rental model [1][5][66]. - **Market Risks**: Investor sentiment is expected to remain weak, and banks may tighten funding to private developers [5][66]. Additional Important Insights - **Technical Support**: The report notes that technical factors are supportive of China credits, with limited supply expected to continue into 2026 [5][15]. - **Valuation Trends**: China credits have experienced strong compression, with the JACI China IG Corp Index tightening significantly over the past year [15][16]. - **Funding Strategies**: TMT companies are exploring alternative funding channels, including exchangeable bonds and CNH bonds, to leverage lower costs and increased demand [44][66]. Conclusion - **Investment Strategy**: The report advocates for a selective investment strategy in China credits, focusing on high-quality TMT names and defensive SOEs while remaining cautious in the property sector due to ongoing risks and market fragility [1][5][66].

Industry Trend - Zhengzhou's property crisis creates opportunities for micro-drama producers due to low real-estate costs [1] - Low real-estate costs in Zhengzhou enable the establishment of vast film-production complexes at a low cost [1]