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Standard Bank Group
Inside China 07 May 2025

Two meaningful meetings; one about the trade war, one about finance

Jeremy Stevens

  • China's Vice Premier He Lifeng will visit Switzerland from 9 to 12 May for discussions with US Treasury Secretary Scott Bessent regarding the evolving economic and trade relationship between China and the United States. While many observers believe that tariffs may eventually be reduced, underlying tensions in US-China relations persist, affecting various sectors, including services, investment, and technology.
  • China is acutely aware that continued confrontation with the US will have negative consequences. Specifically, exports, which have provided a crucial offramp for China’s growing factory output, accounting for 30% of economic growth last year – and as much as 46% of growth in H2 – obviously will not be repeated this year. Related, the trade tensions threaten the growth of manufacturing investment, an engine for China’s economy since the pandemic, heightening concerns about overcapacity and factory gate deflation, and presenting another speedbump to the improvement of business sentiment and household expectations around income, job and employment prospects. Further, the slowdown in exports will hit business activity, placing corporate and VAT revenue under pressure, all the while causing further financial volatility – which Beijing would have been eager to avoid this year.
  • To navigate the current economic challenges, China's banking sector is instrumental in supporting consumption, incentivising the growth of new productive forces, and managing the financial ramifications of a slowing real estate sector, alleviating the fiscal challenges faced by local governments, and mitigating the adverse effects of the US trade war.
  • Reflecting the strains within China’s economy, the nation’s six largest banks reported a notable decline in profits in Q1:25. Collectively, these banks experienced a downturn of approximately 7.3 billion yuan (c.USD1bn), compared to the same period the previous year, translating into a reduction of 2% y/y. This downturn serves as an ominous sign of the challenges facing China’s banking sector and broader economy – even before the effects of the trade war have fully played out.
  • Much as in September 2024, in response to pressing economic concerns, top officials from various financial regulatory bodies, including the PBOC, the China Securities Regulatory Commission (CSRC), and the National Financial Regulatory Administration (NFRA), convened in Beijing on 7 May 2025. During this meeting, PBOC Governor Pan Gongsheng introduced a new set of policies aimed at stabilizing market expectations amid ongoing turbulence. This strategic initiative has been characterized as "moderately loose" monetary policy intended to inject much-needed liquidity into China’s economy. Key policies include cuts to the reserve requirement ratio and interest rates, in addition to targeted lending facilities for vulnerable sectors unable to withstand external shocks.
 

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