China Markets Eye Rare Earth Deal Amid Fading Growth Momentum

October’s US-China trade truce will be in the spotlight as Beijing and Washington return to the negotiating table.

US Treasury Secretary Scott Bessent signaled a potential rare earth trade deal amid simmering US-China trade tensions.

A rare earth deal could ease trade tensions in the short term, potentially boosting demand for Mainland China-listed stocks. However, US trade policies continue to impact the Chinese economy, raising uncertainty about compliance with any trade pacts.

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The ongoing race toward AI dominance has accelerated in recent months, challenging Washington’s bid to lower global dependence on China.

Thanksgiving Rare Earth Deal: Prospects and Limits

US Treasury Secretary Scott Bessent announced that the Trump Administration was targeting a Thanksgiving trade deal with China. According to The Kobeissi Letter:

“Bessent says he is confident that China will honor the deal.”

While a rare earth deal could benefit the US, ongoing tariffs on Chinese shipments continue to weigh on external demand for Chinese goods. Recent Chinese economic indicators suggest any rare earth deal would likely be a further pause in the trade war rather than a seismic shift in policy. Crucially, any agreement will mean China giving up a key bargaining chip in trade negotiations.

Nick Redman, Director of Analysis and Head of Oxford Analytica at Dow Jones, downplayed the likelihood of China giving up its leverage, stating:

“So, I don’t think China is going to give up the leverage. What the agreement is is we’re just going to hold off for a year. We’ll give ourselves a year to try and negotiate something, which is more permanent.”

The bigger question will be whether China receives any longer-term concessions from a rare earth deal.

Redman concluded that any deal would be a temporary pause, with Beijing and Washington wanting to develop distinct supply chains.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero also believed that China would not give up its main bargaining chip, stating:

“The deal is far from done. China can use licenses as leverage and decide to grant or withdraw them and exert pressure any time.”

Notably, speculation about a rare earth deal has failed to boost demand for Mainland China-listed stocks. A weakening Chinese economy has weighed on sentiment, with Mainland China’s equity markets facing a three-day losing streak on Tuesday, November 18.

External and Domestic Demand Challenges Deepen

Upcoming rare earth trade talks come at a pivotal juncture for the Chinese economy. October data signaled a further loss of economic momentum, raising concerns about Beijing achieving its 5% GDP growth target.

Notably, retail sales growth slowed from 3% year-on-year (YoY) in September to 2.9% in October, with price wars squeezing margins. This has forced firms to lower wages and cut staffing levels. The uncertain labor market outlook and US tariffs affecting external demand have weighed on consumer sentiment, cooling domestic consumption.

Meanwhile, industrial production rose 4.9% YoY, slowing from 6.5% in September, underscoring a weaker demand backdrop. Chinese exports fell 1.1% YoY in October, down sharply from an 8.3% surge in September.

While the US and China may reach a short-term rare earth deal, addressing waning external and domestic demand will likely be key for Beijing.

Beijing recently announced a $1.4 trillion fiscal stimulus package aimed at boosting infrastructure spending and addressing local government debt issues. However, markets may need to see a greater focus on the housing market, given the influence of the housing price trends on household purchasing power and consumer sentiment.

Mainland Equities Retreat Despite Truce and Stimulus

Mainland China’s equity markets have retreated from their November highs, despite the Trump-Xi trade truce in late October. Uncertainty about the US and China sticking to the terms of the one-year truce and disappointing economic data have weighed on sentiment.

The CSI 300 has fallen 0.90% in November to date. A more balanced US-China trade deal, including lower tariffs on Chinese goods and more stimulus from Beijing, could send the CSI 300 toward its October high.

Outlook: China’s Economy Under the Microscope

As traders consider upcoming US-China trade talks, key Chinese economic data will also influence sentiment.

Industrial profit will face scrutiny later this month. Improving industrial profits could signal easing margin pressures. Widening margins could allow firms to boost job levels and raise wages, supporting domestic consumption. Economists expect industrial profits to rise 3.7% (Jan-Oct) year-on-year, up from 3.2% in September.

Upbeat figures could lift sentiment, potentially sending Mainland China’s indices toward their 2025 highs.

US banking giant Morgan Stanley recently delivered a positive outlook for Chinese stocks. According to CN Wire:

“China’s stocks are set to record moderate gains in 2026, extending the momentum that made them among the world’s best performers this year, according to Morgan Stanley.”

CN Wire also commented on the bank’s outlook for corporate profits, crucial for stock price trends, stating:

“The bank expects Chinese corporate profits to rise 6% next year, despite lingering deflation, accelerating to 10% in 2027 as the economy begins to exit deflation in the second half.”

Morgan Stanley attributed the 2025 market rally to state support, easing US-China trade tensions, and advancements in the tech sector.

Despite the short-term pullback, the CSI 300 has rallied 17% year-to-date (YTD). For context, the Hang Seng Index has soared 30% YTD, while the Nasdaq Composite Index is up 18%.

Discover strategies to navigate this week’s market trends here.