Certain sectors of China’s economy remain sluggish.

The yuan continued its downward trend, recently weakening to 7.25 yuan per dollar. This decline reflects lingering weak sentiment following former U.S. President Donald Trump’s announcement of plans to impose an additional 10% tariff on all Chinese imports upon assuming office in January. This announcement raised concerns among investors about potential trade disruptions and sharp increases in import prices. The heightened tariffs are also expected to directly impact Mexico and Canada, with additional tariffs of up to 25% being levied.

Economic data from China revealed a 4.3% decline in industrial profits, intensifying concerns about the country's ability to sustain the level of growth seen in previous years. Weak domestic demand, deflationary pressures, and a continued slowdown in the real estate sector—observed since last year—are key factors. However, investors are turning their attention to upcoming PMI data for deeper insights into the domestic economy and potential stimulus measures in the future.

Some indicators of China’s economic performance have improved, driven by swift policy implementation and new measures introduced in October. For instance, retail sales rose 4.8% year-on-year, fueled by the one-week Golden Week holiday and recent shopping festivals. Meanwhile, the surveyed unemployment rate dropped to 5.0%, its lowest level in four months. The National Bureau of Statistics noted strengthened confidence in the real estate market, supported by ongoing stimulus measures. Nevertheless, the bureau cautioned about persisting domestic and global challenges, suggesting that additional government stimulus might be required to meet annual growth targets.

The People's Bank of China (PBoC) recently injected 900 billion yuan into financial institutions through a one-year medium-term lending facility (MLF) at an interest rate of 2.0% on November 25. This decision underscores efforts to bolster liquidity in the domestic economy and ensure sufficient credit availability. The consecutive two-month reduction of MLF rates after a 30 basis point cut in September—has led investors to speculate that the central bank may undertake further liquidity injections next year.

In recent months, the central bank has implemented various supportive measures to stimulate the slowing economy, including slight interest rate cuts and liquidity-enhancing tools. These measures include substantial yuan injections into the financial system and additional government bond purchases.

Industrial profits in China fell 4.3% year-on-year to 5.8 trillion yuan during the first ten months of 2024, reflecting continued economic slowdown. Weak domestic demand and deflation have dampened spending by both consumers and businesses. Meanwhile, profits of state-owned enterprises dropped further by 8.2% after a previous decline of 6.5%, indicating limited growth despite government stimulus and increased public investment.