The Chinese economy remains fragile due to less demand.

The yuan has depreciated once again because investors anticipate further monetary easing by the People's Bank of China to support the struggling economy. Major Chinese banks such as Ping An Bank, Shanghai Pudong Development Bank, and China Citic Bank have begun reducing deposit interest rates this week in line with previous interest rate cuts in China.

The People's Bank of China (PBoC) has opted to maintain its interest rates as the central bank endeavors to slowly revive the economy. The one-year Loan Prime Rate (LPR) remains at 3.45%, and the five-year LPR is at 4.2%. The central bank might consider reducing reserve ratios next year to enhance liquidity and lending capabilities within the country's banks.

Simultaneously, the real estate sector, a significant segment of the Chinese economy, continues to face sustained pressure after a post-pandemic recovery. There remains a persistent risk of defaults among contractors despite the government's efforts to stimulate demand and alleviate liquidity concerns.

Profits for Chinese industrial companies have dropped by 4.4% year-on-year, totaling 6.98228 trillion yuan in the first 11 months of 2023. Despite government support, major companies still face contraction due to shrinking demand and reduced margins. State-owned enterprises experienced a 6.2% decline in profits, while private sector gains increased by 1.6%, mainly driven by a 275.6% surge in the steel smelting industry.

Foreign Direct Investment (FDI) in China decreased by 10% year-on-year, dropping to 1.04 trillion yuan or $145.51 billion in the first 11 months of the year. This decline signals that foreign investors continue to withdraw and reduce investments in China consistently. Confidence in China's economic recovery remains fragile, with significant declines in investment primarily observed in the service sector. However, investments in high-tech industries increased by 37.2%, mainly from the United Kingdom and France, contributing to over 90% of the growth.

The yield on China's 10-year government bonds dropped to 2.60% as the central bank maintains its policy interest rates unchanged. Investors anticipate further policy easing in the upcoming year. The necessity for China to bolster its economy significantly in the next year is crucial due to domestic vulnerabilities and growing monetary constraints.

Techical analysis data (5H)

Resistance: 7.1477, 7.1514, 7.1532

Support: 7.1421, 7.1402, 7.1365

Source: Investing.com