“Patience” is the watchword | The weekly recap

China’s economic authorities finally began rolling out support measures this week – after hinting they would do so for months.

Specifically, following a meeting on Wednesday, monetary and financial officials unveiled a spate of policy boosters. The headline moves included:

• A 10 bps cut to the key policy interest rate
• A 50 bps cut to banks’ reserve requirement ratio – unlocking RMB 1 trillion in liquidity
• A 25 bps cut to mortgage rates offered through the housing provident fund – an employer/employee-funded social insurance program designed to support home purchases

Officials also expanded relending support under the central bank (PBoC) by:

• Increasing support for agricultural and small businesses by RMB 300 billion
• Expanding support for innovation and technological upgrading, by RMB 300 billion to RMB 800 billion
• Launching a new RMB 500 billion facility to support service consumption – covering sectors including eldercare, hotels, catering, entertainment, culture, sports, and education

Finally, authorities also offered more support for the stock market by:

• Reducing the risk weightings of insurance companies’ equity holdings so they can ramp up stock investments
• Broadening the scope of the PBoC’s relending facility to help listed companies finance share buybacks
• Expanding the scope of the PBoC’s swap facility allowing insurers, securities brokerages, and fund management companies to swap bonds, exchange-traded funds (ETFs), public REITS, and stocks included in the CSI 300 for treasury bonds and central bank bills from the PBoC – freeing up funds for more stock purchases

Our take: All these moves are incremental, and in line with last year’s monetary and financial adjustments – taken together, they still amount to a pretty modest support package.

• The policy rate cut is unlikely to meaningfully boost credit growth in an environment where businesses are still hesitant to finance new investments.
• The mortgage rate cuts are unlikely to sway cautious homebuyers.
• The relending programs for small businesses and innovation should provide some relief for manufacturers hurt by the trade war – but the consumer-focused relending program won’t boost household confidence, which is key to reviving consumption.
• And the stock market support measures are explicitly meant to put a floor under share prices – not drive a market rally.

I discussed all of this with Trivium’s Head of Markets Research Dinny McMahon on the Trivium podcast this week.

• Our conclusion – the same as it long has been – was that what the economy really needs is stronger fiscal spending.

And encouragingly, a ramp-up in fiscal outlays still appears to be on the cards.

• Wednesday’s monetary and financial measures were by no means a one-and-done policy support effort.
• And promisingly, recent reserve requirement cuts for banks have generally foreshadowed surges in government bond issuance, as banks need the extra liquidity to absorb a wave of new government debt.

That said, the central government isn’t about to announce a big new financing package – it will simply accelerate the central and local fiscal spending it already outlined at the Two Sessions in March.

The key takeaway for me is that China’s economic officials are undertaking a remarkably patient approach.

• Even with solid Q1 growth, there were arguably enough challenges facing the domestic economy – weak housing demand, subdued household and business confidence, and widespread deflation – to warrant a quicker rollout of monetary and fiscal easing.

And of course, the trade war – while peaking in April – was clearly escalating as early as February, offering yet another reason to frontload economic support and cushion impending export headwinds.

• But given this week’s moves, and the lack of policy adjustments throughout Q1, it appears that China’s leaders are purposefully holding back – likely waiting to at least get a better gauge of the early, concrete impacts of the tariffs, and their interplay with persistent domestic economic weaknesses, before responding more forcefully.

That said, they have at least started responding – with more, particularly on the fiscal side, likely arriving soon.

• For now, it’s anyone’s guess whether that incoming support will be too little, too late.
• But what’s clear is that Xi Jinping and company aren’t hitting the panic button.

This measured, patient approach – to the trade war, to monetary easing, to accelerated fiscal spending, and to the housing meltdown – has become a defining feature of China’s post-pandemic economic strategy, for better or worse.

Andrew Polk, Co-founder, Trivium China

What you missed

Econ and finance

On Wednesday, as anticipated, Xi Jinping chaired a symposium with local officials to discuss the 15th Five-Year Plan (FYP), which will cover 2026 to 2030.

• At the meeting, Xi highlighted several strategic tasks for the next FYP – all aimed at navigating mounting US economic pressure – including doubling down on home-grown innovation, raising household incomes, and strengthening social security.
• The Party will endorse recommendations for the new FYP at a Central Committee Plenum this fall.

Labor Day travel data suggests the US-China trade war has done little to dent consumer confidence, at least for now. During the five-day holiday (May 1-5):

• 314 million people traveled domestically, up 6.4% y/y
• Total tourism-related expenditure hit RMB 180.3 billion, up 8.0% y/y
• In real terms, per capita spending rose 1.6% y/y and increased 2.2% relative to 2019

Tech

On Tuesday, six ministries and the Chinese Academy of Sciences (CAS) released plans to overhaul China’s ag innovation system – with the explicit goal of becoming the world leader in agricultural science and technology by 2035.

• The document plans to fix structural issues that constrain agtech innovation and to achieve self-sufficiency – something Xi has been talking about for years.
• Key measures include consolidating government-led ag research, pushing leading ag companies to increase R&D, and ensuring talented young scientists have opportunities to study and work in agtech.

On May 2, the Irish Data Protection Commission (DPC) fined TikTok EUR 530 million for transferring EU residents’ personal information (PI) to China.

• The EU’s General Data Protection Regulation (GDPR) requires companies to guarantee outbound PI transfers are protected to EU standards, which includes ensuring unauthorized third parties cannot access the data.
• But China’s national security laws provide the government with unfettered access to PI sent to China.
• TikTok has resolved the compliance issue by constructing EU data centers to store EU PI – but this fine applies to transfers before the data centers were in place.

Foreign affairs

On Thursday, Xi Jinping met with Russian President Vladimir Putin in Moscow.

• Xi was in town for Russia’s Victory Day celebration, marking the 80th anniversary of the end WWII in Europe.
• The pair released a joint statement with a not-so-subtle dig at the US: “Some countries are obsessed with hegemony…and curb other countries’ economic and technological development in order to protect their own privileges.”

On Tuesday, China’s commerce ministry (MofCom) announced anti-dumping duties ranging from 48.4% to 166.2% on Indian cypermethrin – an insecticide used widely in agriculture – effective Wednesday.

• Officially, the move followed complaints from domestic producers.
• Unofficially, it sent a pointed message: Don’t screw over China to appease Washington.
• This follows last month’s warning from MofCom that countries collaborating with the US to isolate China will face dire consequences.

US-China

On Wednesday, the US and China confirmed that Vice Premier He Lifeng will meet US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer in Geneva on Saturday.

• This will be the first confirmed dialogue between the two countries since the trade war kicked into high gear in April.
• Bessent told the press the talks will focus on “de-escalation rather than a big trade deal”.
• Meanwhile, China’s MofCom urged the US to “engage in good-faith negotiations and correct previous wrongdoings.”

On May 2, US Republican lawmakers John Moolenaar and Rick Scott sent a letter to Paul Atkins – chair of the Securities and Exchange Commission (SEC) – calling for the delisting of certain US-listed Chinese companies.

• The letter alleges 20 firms, including Alibaba and Pinduoduo, are under Chinese government control and have ties to the Chinese military.
• The lawmakers urged the SEC to invoke the Holding Foreign Companies Accountable Act (HFCAA) to begin the delisting process.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.