#TradeWarEases #ChainaEconomy
Greetings, esteemed crypto colleagues and everyone trying to understand where the global financial machine is heading! While the Federal Reserve was digging into its five-year-old strategies in Washington (we wrote about this earlier: The Fed is revising its strategy, while Powell talks about flexibility and lessons from inflation), passions were also boiling in the Celestial Empire, invisible to the average person but critically important for global markets. Thursday, May 15, 2025, brought news from China that made analysts frown and indices drop.
Credit crash: What is happening with lending?
The main 'alarm bell' sounded from the banking sector. Fresh data showed that Chinese banks issued only 280 billion yuan in new loans in April 2025. To understand the scale of the drama: this is sharply lower than both the March figure (730 billion last year) and market expectations (bored analysts were betting on 700 billion). Worse yet, this is the lowest April figure in 20 years, since 2005!
Analytical view: There are two options here, and both are not very cheerful. Either businesses and households simply do not want to take out loans (which indicates weak demand and pessimism), or banks do not want to lend (which may indicate problems in the banking sector itself or tightening standards). Most likely, it’s a mix of factors. But a 20-year low is serious. This screams that domestic economic activity may not be as buoyant as officials would like to see.
Indeed, the overall picture of total social financing (TSF) looks slightly better. TSF, which includes loans, bonds, and other means of attracting money into the real economy, increased by 1.16 trillion yuan. This corresponds to the government's promises to increase bond issuance, especially long-term special bonds. Analytical view: Here, Beijing seems to be trying to compensate for the weakness in bank lending through budget infusions via the bond market. Such a 'prop' could support infrastructure projects, but it does not solve the problem of weak demand from the private sector. Growth in the loan balance by 7.2% and money supply (M2) by 8% year-on-year (the strongest growth in a year!) is also more of a consequence of liquidity injection and possibly a low base effect than a sign of organic healthy growth in lending.
Tariff thaw: One step forward, two steps back?
Against the backdrop of credit pessimism, news from the trade front came that could be called positive... but with caveats. China lifted export restrictions on rare earth metals and military technologies for 28 American companies. This happened just two days after the 'Geneva Agreement' with the USA on a 90-day pause in the trade war and a reduction of tariffs by 115 percentage points.
Analytical view: Lifting the ban on rare earth elements is a significant gesture. These materials are critically important for the American high-tech industry (chips, electric vehicles, defense). This step is clearly aimed at de-escalation and creating a positive backdrop for further negotiations. This is undoubtedly a good sign after a period when the States slapped tariffs up to 245%, and China responded with export bans. However, the key phrase is '90-day window'. This is a temporary truce. Analysts rightly warn that the lack of a long-term agreement continues to hang over the Chinese economy. Plus, we must not forget that the USA has not abandoned its goal of reducing dependence on Chinese imports. So, this is more of a 'tactical retreat' or a 'reset in bilateral relations', as the Ministry of Commerce of China called it, than the end of the trade war.
Market reaction: Pessimism has won over the 'thaw'
How did Chinese exchanges react to this cocktail of weak lending data and fragile trade truce?
Indices went down: The Shanghai Composite Index fell by 0.5-0.69% on Thursday, while the Shenzhen Component lost from 0.8% to 1.62%. They have lost part (or even all) of the gains from the previous day.
Reasons for the decline: Analysts are unanimous – the culprits are ongoing trade uncertainty and weak April lending data. The market seems to have decided that the 20-year low in lending is a more significant factor than the 90-day tariff pause.
Who are the leaders in the decline? The technology sector suffered the most losses. Stocks of East Money, Avic Chengdu, Victory Giant, Zhongji Innolight, and Talkweb Information showed significant declines. This is logical, considering that the technology sector is the most sensitive to both trade restrictions and overall economic weakness and declining investments.
Corporate news: Let’s add mixed news about earnings reports: Alibaba slightly missed profit forecasts (12.52 yuan per share versus 12.60 expected), while NetEase pleasantly surprised, showing 17.51 yuan against 13.95 expected. Such stories can cause movements in individual stocks, but macro and trade factors set the overall trend of the day.
In short for crypto enthusiasts:
What does this entire Chinese economic show mean for us, the inhabitants of the digital jungle?
Problems of the world's second-largest economy: Lending data is a serious signal of potential issues with domestic demand and investment in China. If the second-largest economy in the world sneezes, everyone feels it. Weakness in China could affect global liquidity, demand for risky assets, and overall investor sentiment.
The trade truce is fragile: Lifting the ban on rare earth elements is a positive step, but 90 days will fly by quickly. The ongoing uncertainty and the USA's goal to reduce dependence on China mean that trade tensions could return. This is a risk factor that investors will continue to consider.
Markets are nervous: The fall of Chinese indices, especially in the tech sector, shows that markets do not believe in a quick recovery or long-term solutions to trade issues. Weak lending data only adds fuel to the fire of pessimism.
For the crypto market, the direct impact may not be immediate, but the indirect impact is obvious. Weakness in China could affect global liquidity, demand for risky assets, and overall investor sentiment. In a world where economies are so intertwined, ignoring what is happening in the second-largest economy would be simply naive. We continue to observe and analyze!
