China Markets Struggle as PBoC Pause Adds to Policy Uncertainty

Chinese economic indicators triggered calls for fresh stimulus and monetary policy support, spotlighting announcements from Beijing. US trade policies have pummeled external demand for Chinese goods.

Meanwhile, China’s housing crisis and price wars have eroded consumer sentiment. Weaker consumer sentiment has impacted domestic consumption, challenging Beijing’s 5% GDP growth target.

The absence of fresh policy measures from Beijing, following October’s Trump-Xi trade truce, has tested demand for Mainland China-listed stocks. The CSI 300 and the Shanghai Composite Index have retreated in recent sessions, underscoring market uncertainty about the economic outlook.

Fresh policy support from Beijing could revive the 2025 Mainland equity market rally ahead of the next round of trade talks.

People’s Bank of China Keeps Rates Steady

The People’s Bank of China (PBoC) took center stage on Thursday, November 20, amid calls for further policy support. The decision tested demand for Mainland China-listed stocks.

The PBoC left the one-year and five-year loan prime rates at 3% and 3.5%, respectively, aligning with market expectations. This morning’s decision suggests that lower borrowing costs are unlikely to bolster the housing market or boost domestic consumption.

For context, the five-year LPR is a reference for mortgage rates, while the one-year LPR influences corporate and household loan rates.

Notably, retail sales growth slowed from 3.0% year-on-year (YoY) in September to 2.9% YoY in October. Domestic consumption has continued to wane since May, when retail sales soared 6.4% YoY. Housing sector data also showed no signs of a near-term recovery, suggesting weakening consumer sentiment and spending.

Markets reacted to the interest rate decision, with the CSI 300 and the Shanghai Composite Index pulling back from early highs.

The PBoC’s interest rate decision came ahead of US and China negotiations on rare earths.

China Controls Rare Earth Exports Ahead of Talks

While markets consider the PBoC’s decision, US-China trade talks are likely to retake center stage this week. US Treasury Secretary Scott Bessent announced a potential rare earth trade deal ahead of the Thanksgiving holiday. However, economists have raised doubts over China giving up a key bargaining chip in broader trade negotiations.

Managing Director of China Beige Book, Shehzad Qazi, commented on China’s recent rare earth export data, stating:

“Outbound shipments of the materials used in electric vehicles, weapons, and high-tech manufacturing dropped to 6,173 tons, the lowest level since June, according to customs data released on Tuesday.”

October’s drop in rare earth exports to the US came ahead of the Trump-Xi trade truce, where Beijing agreed to lift restrictions on exports for one year.

Beijing will be mindful of its dominance in the electric vehicle manufacturing space. Restrictions on rare earths are a potential chokepoint for US electric vehicle manufacturers.

Chinese exports fell 1.1% YoY in October after September’s 8.3% surge, reflecting a slump in demand for Chinese goods. However, external demand for Chinese-manufactured cars remained robust. East Asia Econ commented on October’s trade data, stating:

“China’s overall trade was weaker in October, but exports of cars weren’t. Indeed, the data continued to show there’s now a third stage in China’s car exports: after a sharp rise in 2022-23 and a pause in 2024, shipments have now reaccelerated.”

East Asia Econ noted that the acceleration in exports was not due to price cuts but was supported by the entry price for Chinese-manufactured cars.

The outcome of talks on rare earth exports could be crucial. Chinese manufacturers remain exposed to 47% tariffs on shipments bound for the US. Failed talks could reignite trade tensions and raise fears over both sides breaking the one-year trade truce, potentially weighing on risk assets.

Mainland Equities Hold Gains Despite PBoC Decision

Mainland China’s equity markets continue trading below their 2025 highs. However, gains from Wednesday, November 19, and this morning’s modest upswing could signal a reversal of three consecutive daily losses.

The CSI 300 has declined 0.78% in November to date, after ending October flat. For context, the Hang Seng Index is down 0.21% in November. A US-China trade deal on rare earth exports that paves the way toward lower US tariffs on Chinese goods could revive Mainland China’s 2025 equity market rally.

However, traders will likely be cautious ahead of any announcement, given the downside risks from stalled talks.

Outlook: Trade Talks, China Data, and Beijing in Focus

As traders await developments from US-China trade talks, key Chinese economic indicators will come under increased scrutiny.

On Thursday, November 27, Chinese industrial profit figures will reveal whether margin squeezes are continuing to erode corporate profitability. Economists expect industrial profits to rise 3.8% from January to October compared to the same period in 2024, up from 3.2% in September.

Rising profits could signal stronger demand and easing price pressures. Crucially, higher profits could enable firms to boost job creation and lift domestic consumption.

Thursday’s data will precede November’s NBS private sector PMIs, due out on Sunday, November 30. November’s data will provide early insights into the effect of lower US tariffs on demand for Chinese goods and broader external demand trends.

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