Deutsche Bank-China Market Perspectives China in Pictures Resilience ami...-116129189

25/06/2025 01:02:10 GMT25/06/2025 01:02:10 GMTDeutsche BankResearchMacro Strategy:Perry Kojodjojo Hazel LaiPerry.Kojodjojo@db.comHazel-a.lai@db.comEconomics:Yi Xiong Deyun OuYi.xiong@db.comDeyun.ou@db.comJune 2025IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAYHAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.China in PicturesResilience amid trade uncertaintiesDeutsche Bank Research• Economics: Growth remained robust at over 5% in the first five months of the year, fueled by resilient exports despite trade tensions, as well as recovering services and consumption due to policy support. While activity may moderate in June as holiday and subsidy impacts wane, Q2 growth is likely to stay above the government's growth target.The strong performance thus far likely reduces the urgency for additional broad-based policy support until after the summer. As such, we have postponed our 10bp policy rate cut forecast from Q3 to October. Likewise, we believe any fiscal budget revision, if necessary, is likely to be pushed to Q4. More policy measures for the property sector may be on the way, though, as the State Council has committed to increase its support. On the trade deal with the US, our base case is for the US to maintain additional 25-30% tariffs on China through year end. The upcoming rounds of negotiations are likely to focus on export control issues, such as chips and rare earth materials.We have raised our 2025 GDP growth forecast to 4.8% YoY (+0.1ppt), and our Q2 and Q3 forecasts to 5.1% YoY (+0.3ppt) and 4.5% YoY (+0.1ppt), respectively.• FX: The recent shifts in capital flows further strengthen our case for a stronger RMB. Domestic residents have been net sellers of USD for the third consecutive month, while foreign investors are gradually returning to China’s equity market, despite recent bond outflows. In addition, equity outflows via Southbound trading are moderating, likely due to improving investor sentiment. These flow dynamics, coupled with the ongoing lower USD/CNY fix, reinforce our outlook for the RMB and support our 3M USD/CNH put spread trade. Moving forward, a key factor will be whether we see additional FX conversions, especially as we approach the 7.1 level.• Rates: Considering the recent open-market operations, we believe the PBoC will maintain accommodative monetary policy conditions in H2. Consequently, the front-end rates should be well anchored at the current low level. However, we see limited room for a further rally, as 10bp is already priced in. While net CGB supply is anticipated to add pressure to long-dated CGB yields, the potential pick-up in lifers’ premium growth in the next two months is likely to keep the curve steepening at a gradual pace.1China in Pictures | Yi Xiong Deyun Ou, Perry Kojodjojo, Hazel Lai | June 2025Key takeawaysEconomicsDeutsche Bank ResearchSequential GDP growthBreakdown of GDP growth3China Macr