In a situation where the global economy is going through tough times, shaken by fiscal problems and trade conflicts, China seems not just to be weathering the storm, but actively building its foundation for economic victories. Recent events show that the Middle Kingdom is playing a rather cunning game, combining internal incentives with strengthening international alliances. And, frankly, this looks like a well-thought-out response to global turbulence, although, of course, it is not without its pitfalls.
Let's start with what is happening 'at home'. China's financial authorities have proposed a new package of support measures aimed at small and micro enterprises, particularly in the agricultural sector. Sounds familiar, right? But there are nuances here. The plan includes expanding access to various types of financing – from initial loans to medium- and long-term loans. Monetary tools, such as refinancing, will also be put into action to provide additional support. Banks are instructed to set reasonable interest rates and reduce additional fees, as well as simplify approval procedures. This 'drip' support is intended to stimulate the real sector and ease the lives of entrepreneurs who, like everywhere in the world, often find themselves at the eye of the economic storm. However, how effectively it will work in practice remains to be seen. In addition to this, the People's Bank of China (PBOC) at its May 2025 meeting lowered the key lending rates (LPR) for the first time in seven months: both the one-year and five-year rates were cut by 10 basis points to historic lows of 3% and 3.5%, respectively. This was, of course, expected after previous easing measures, but the very fact indicates a desire to stimulate economic growth and soften the blow from escalating trade frictions. Cheap money, as we know, is loved by business – with the right approach, of course, and how 'right' this approach will be in the long run is another question.
But China would not be China if its strategy were limited to just domestic affairs. A genuine diplomatic trade saga is unfolding on the international stage. Beijing and ten ASEAN countries (Association of Southeast Asian Nations) have completed negotiations on a modernized free trade agreement known as 'version 3.0'. This update of the 15-year-old agreement is a key step towards deepening regional ties amid ongoing trade disputes with the US. Commerce Minister Wang Wentao couldn't resist a jab at American trade policy, stating that 'there are no winners in a tariff or trade war'. And while Washington tries to find balance in its trade relationships, China is actively strengthening economic partnerships not only with ASEAN but also with the EU. The new agreement with ASEAN adds nine chapters dedicated to the digital and 'green' economy, customs, and supply chains. The parties also agreed on cooperation in cybersecurity, electronic payments, infrastructure, and technical standards – starting with new energy vehicles and electronics. This is not just trade; it is a strategic strengthening of one's own bloc and active promotion in the sectors of the future. It looks like an attempt to create its own economic orbit, doesn't it?
But what about currency and markets? The offshore yuan strengthened to 7.19 per dollar, extending gains from the previous session. Partly, this is due to the weakness of the dollar, which continues to lose ground amid concerns about the worsening fiscal situation in the US. Trump's proposed budget with its massive tax breaks could significantly increase the national debt, which, combined with a disappointing auction of 20-year US bonds (indicating a decrease in demand for American assets), is putting pressure on the greenback. Chinese stocks, however, did not escape the overall global sentiment and declined slightly, ending a two-day winning streak. The Shanghai Composite fell by 0.22% to 3,380, while the Shenzhen Component dropped by 0.72% to 10,220. Fears that Trump's tax bill (which is estimated to add over $3 trillion to the already significant US debt) could provoke financial instability and affect global risk appetite clearly dampened the mood. Even the rate cuts by the PBOC and reductions in deposit rates by state banks (to ease pressure on shrinking interest margins) did not spare the market from correction, although it may have softened it. Losses were led by several well-known companies, including Contemporary Amperex (-1.4%), Gotion High-Tech (-2.8%), and Tianjin Motor (-2.8%). Overall, the Chinese market, while trying to hold on, is still unable to completely insulate itself from global turmoil.
Overall, we see a clear 'two-handed' strategy from China. On one hand, active domestic support and stimulation of the economy through targeted measures and easing of monetary policy. On the other – a decisive strengthening of regional and global ties to create alternatives and reduce dependence on old trade routes and relationships, especially in light of ongoing frictions with the US. While Uncle Sam counts his growing debt, China seems to prefer counting new chapters in trade agreements and exploring territories in the digital and 'green' economies. This proactive position not only protects its own economic interests but also reshapes the global economic map. It will be interesting to see how this 'dragon dance' affects the crypto space, which, as we know, is sensitive to any signs of change in the global financial landscape. Or maybe this is just preparation for even more serious challenges? Time will tell.
