China's economy continues to show signs of slowing growth.

The yuan remains stable after the central bank injected over 300 billion yuan into the financial system. However, most of the pressure stems from the rapidly strengthening US dollar, as the Federal Reserve has adjusted its projection for interest rate cuts next year to just two instances. Moreover, the People's Bank of China (PBoC) has yet to introduce additional policies to significantly boost economic growth, despite some interest rate cuts in previous months.

On December 25, the PBoC injected a total of 300 billion yuan into financial institutions through medium-term lending facilities (MLF), offering one-year loans at a fixed rate of 2.0%. Additionally, loans worth over 1.45 trillion yuan are maturing this month, resulting in a net withdrawal of 1.15 trillion yuan from the system, marking the highest level since 2010. Despite a 30-basis-point rate cut in September, the central bank stated its intent to adopt a slightly more accommodative monetary policy while implementing proactive economic stimulus measures to address slowing growth caused by weak domestic demand.

However, the central bank has not commented on or disclosed details regarding the economic implications of the recent U.S. presidential election. President-elect Donald Trump has proposed raising import tariffs, potentially by 10%, targeting countries like Mexico, Canada, and China. This tariff hike is expected to directly impact China's exports, given its ongoing trade surplus with the U.S.

In its latest meeting, the PBoC decided to keep interest rates unchanged for the second consecutive month, in line with market expectations. The one-year loan prime rate (LPR), used as a benchmark for corporate and household loans, remains at 3.1%. Meanwhile, the five-year LPR, a reference for mortgage loans, holds steady at 3.6%. Both rates are at record lows following rate cuts in October and July. Nonetheless, China’s budget deficit is projected to rise to 10% of GDP by 2025 to stimulate economic recovery and encourage household and private sector consumption. Additionally, the central bank has pledged to pursue more accommodative monetary policies next year. Some officials have suggested further reductions in the reserve requirement ratio (RRR) from the current average of 6.6%, which could provide some economic relief.

The yield on 10-year Chinese government bonds has dipped slightly to 1.73%, reflecting subdued activity in the manufacturing and services sectors over the past week. Investors are closely monitoring the recent 300 billion yuan injection into financial institutions via medium-term lending facilities. Despite the added liquidity, investors believe that monetary injections alone cannot resolve the current economic challenges. They are awaiting other monetary policy measures, particularly further interest rate cuts, which are critical for reducing production and borrowing costs and potentially reviving economic growth.