#USChinaTensions #ChainaPMI #ChainaStocks
Hello, Binance community! It's time to take a look at the latest data and figure out what’s happening in the big Chinese economy, and how this might concern all of us who are watching the markets. The latest news from the Middle Kingdom has brought us an interesting mix of PMI figures, trade intrigues, and a somewhat strange market reaction. Let’s dig deeper, but without excessive dullness.
So, let’s start with business activity, or rather, with the Caixin PMI indices for April 2025. And here’s the first spoonful of tar: the services sector in China seems to have soured. The Services PMI index slid to 50.7. This is the lowest figure in the last seven months, folks! New orders grew at the slowest pace in 28 months. Why? The decline is linked to the impact of new American tariffs that seem to have started creating problems for commodity trade, and this echoes in services. Export orders, of course, have increased, but just a little, thanks to tourism, which apparently decided to throw in some logs. But overall, the picture is not rosy.
Additionally, in services, employment has been contracting for the second consecutive month. Companies are complaining about rising costs – labor is getting more expensive, and raw materials too. And here’s a classic "twist": input prices are rising (reached a three-month peak!), while output prices... are falling. For the third month in a row! Apparently, competition is such that they have to undercut prices just to sell. And this, you understand, is not very good for profits. And the cherry on top: business sentiment in the services sector is almost at a low since 2005. Why? Because of the same trade wars and uncertainty.
The composite PMI index, which covers both services and manufacturing, also showed weakness, dropping to 51.1 – the lowest in three months. However, to be fair, it's still expansion since it’s above 50. The private sector has been growing for 18 consecutive months, albeit at a slower pace. Here, too, new orders are to blame, which are growing at the slowest pace in seven months, especially foreign sales, which have turned negative again. The story with prices is similar to that in services: purchase prices are rising, while selling prices have been falling for the fifth month. Business sentiment is also at a historical low since 2012, leading to new job cuts. The senior economist at Caixin honestly warns: the "wave effects" of the tariff drama will still echo in the second and third quarters. He says politicians need to stay alert.
And here is where the most interesting part begins – the market reaction. It would seem that such not-so-joyful news regarding the PMI should have sunk the markets, but... no! After the May holidays, Chinese stocks went up! The Shanghai Composite and Shenzhen Component gained, and the CSI 300 even reached a four-week high. Investors apparently seized on any hints of a thaw in trade relations. Beijing, of course, said it is ready for negotiations, but first, they said, get rid of your tariffs, American gentlemen. And then, Mr. Trump threw more fuel on the fire: apparently ready to reduce the 145% tariffs, but he has no plans to talk to Xi Jinping this week. And, cherry on top #2: announced a 100% tariff on "foreign" films and something else about pharmaceuticals. Such inconsistency, which apparently initially pleased the markets (thanks to hints of negotiations), but then...
...and then the offshore yuan is like: "Well, okay, you all rejoice here, while I’ll go down." And it went down, to the mark of 7.21 per dollar, after recently reaching a six-month peak. Here, the market logic worked more straightforwardly: weak PMI data + these strange trade news = yuan weakening. And a strong dollar amid expectations for Fed rates also exerts pressure.
The bond market is also rather dull, with the yield on 10-year Chinese bonds hovering near three-month lows (around 1.63%). This is also a reflection of uncertainty regarding trade and weak economic data. When everything is unclear, investors often prefer a "safe haven," which in this case may be the low yield on bonds.
In short: the Chinese economy right now is like a salad with spicy sauce from the trade war. The data shows a slowdown, especially in services and new orders, with external factors (tariffs) playing a significant role. Businesses are struggling due to rising costs and the need to lower prices. Meanwhile, stock markets, contrary to logic, reacted with growth, clinging to a ghostly hope for a trade peace. The yuan and bonds assessed the situation more soberly.
In conclusion: Just don't get carried away by headlines about the stock market's growth. Dig deeper. Beneath the surface, there are alarming signals related to the real sector and trade confrontation. While politicians play their games, the economy feels the consequences, and this affects everything, including potentially our crypto portfolios in the long term (since China is a huge part of the global economy). So, friends, keep your finger on the pulse of US-China trade news and don’t forget to look at the basic economic indicators. Be vigilant and cautious!