China_ What do local clients think about the economy_ Local marketing takeaways February 2025

Summary of Key Points from the Conference Call Industry Overview - The conference call focused on the Chinese economy and market outlook, particularly in the context of the upcoming "Two Sessions" in March 2025. Onshore clients from major cities such as Beijing, Shanghai, Guangzhou, and Shenzhen were consulted, including mutual funds, private equity funds, and asset managers from banks and insurance companies [1][2]. Core Insights 1. Improved Sentiment on China’s Macro Outlook Onshore clients have become slightly more optimistic about China's macroeconomic and market outlook due to recent developments in AI and the property sector, including home sales and prices in large cities [2][6]. 2. Concerns About US Growth There is heightened concern among clients regarding the US growth outlook, particularly due to the implications of Trump’s tariff and immigration policies, as well as issues surrounding US debt sustainability [7][9]. 3. Low Expectations for "Two Sessions" Onshore clients expressed low expectations for significant announcements during the upcoming "Two Sessions," particularly regarding fiscal measures and government bond issuance quotas [8][11]. 4. Uncertainties in US-China Relations The recent signing of the National Security Presidential Memorandum and the announcement of additional tariffs on Chinese goods have contributed to uncertainties in US-China relations, with clients expecting a more restrained response from China compared to previous years [9][12]. 5. Monetary Policy Outlook Clients believe that China's monetary policy has effectively tightened since the beginning of the year, despite a shift in the PBOC's stance to "moderately loose." There is a consensus that further liquidity injections will be necessary [13]. 6. PPI Deflation Concerns Onshore clients have lower expectations for PPI inflation, with many anticipating it may not turn positive until 2026 or later, citing overcapacity issues and the prolonged downturn in the property sector [14]. 7. Differences Between Onshore and Offshore Perspectives There are notable differences in how onshore and offshore investors view the Chinese economy, with onshore investors focusing more on PPI deflation and industrial policy, while offshore investors are more concerned with signals from the "Two Sessions" [15]. Additional Important Points - Property Sector Recovery Clients noted some recovery in the property sector, particularly in large cities, but acknowledged that lower-tier cities may continue to face challenges [6][7]. - Government Bond Issuance Expectations Market expectations for total government bond net issuance are in the range of RMB12-13 trillion, with some clients flagging risks of a smaller issuance quota than previously expected [11]. - AI Investment Incentives Local governments and corporates are increasingly incentivized to boost AI-related investments, reflecting a recovery in economic "animal spirits" [6]. - RMB Exchange Rate Stability Clients do not expect significant depreciation of the RMB against the USD, contrasting with sentiments from late last year [13]. This summary encapsulates the key insights and concerns raised during the conference call, providing a comprehensive overview of the current sentiment among onshore clients regarding the Chinese economy and its interaction with global factors.