💬 [E2957] China dominates rare earths industrial chain with majority share in fabrication, refining, and mining. The US and Western allies are calling to de-risk from China's supply chain in rare earths. China's share in global goods exports exceeds 20% with dominance in nearly 10% of global traded goods where it holds >50% export market share.

🟢 [E2968] PBoC signals tolerance of gradual CNY appreciation. With USD weakening, corporates raising hedging ratios and increasing conversion of FX proceeds into CNY. Beijing showing willingness to rein in industrial overcapacity and excess price competition, reducing negative spillovers to trading partners. Mild CNY appreciation provides positive backdrop for managing trade relations.

🟢 [E2952] The CNY's strength is partly driven by investors rotating out of US assets on geopolitical and valuation concerns into relatively attractive China assets. USD/CNY broke below 7.0 for first time since 2023 in January 2026. CACIB expects the positive shift toward CNY appreciation by PBoC can be sustained with a more benign external environment.

💬 [E2960] 10Y CGB yields expected to stay range-bound in 2026, moving moderately lower in H1 before mild rebound to 1.85% by end-2026 on improving inflation and nominal growth. Dip-buying attractive in short end and belly of the curve. Re-steepening of CGB curve will be gradual with 30Y-10Y spread widening to 45-50bp toward end-2026 absent a sizable fiscal package.

🟢 [E2971] CACIB recommends receiving repo IRS in 2Y or 1Y1Y given limited market pricing of PBoC rate cuts compared to their 10-20bp cut forecast. They recommend buying 5Y CGB on dips in 1.65-1.70% range with attractive roll-down. Balanced bond market supply-demand dynamics expected with net government bond supply rising only 7% YoY to RMB14.8trn after 23% increase in 2025.

🟢 [E2988] MoF likely to accelerate consumption tax reform in 2026 to boost local fiscal revenues. Reform could shift consumption tax from central to shared central-local tax and change collection from production to retail stage. Consumption tax is China's fourth-largest tax category at ~8% of fiscal revenue. This would encourage local spending toward demand-side stimulus.

🟢 [E2961] CACIB recommends dip-buying in the short end and belly of China's CGB curve given PBoC's continued easing. They entered a trade to go long 5Y swap spread at -19bp on January 22. 10Y CGB yields expected range-bound moving moderately lower in H1 before mild rebound to 1.85% by end-2026. The 30Y-10Y spread likely to widen to 45-50bp.

🟢 [E2953] PBoC is expected to cut policy rates by 10-20bp and RRR by 50bp by end-2026, with potential timing in Q2. The central bank has ample room to expand its balance sheet through structural policy tools and active CGB trading for OMO after resuming net purchases in October 2025. Liquidity conditions to remain accommodative in interbank market.

🟢 [E2964] The PBoC announced RMB900bn quota expansion for structural policy tools alongside 25bp relending rate cut on January 15. Outstanding structural policy tools (PSL and others) have grown steadily since 2022 exceeding RMB4.5trn. PBoC increasingly using structural tools and active CGB trading for OMO after resuming net purchases in October 2025.

🟢 [E2958] China's GDP deflator has been negative since Q2 2023 but shows signs of narrowing since Q3 2025. CACIB forecasts GDP deflator turning positive in Q3 2026, averaging 0.1% for full year vs -1.0% in 2025. CPI inflation projected at 0.6% in 2026 from 0% in 2025, while PPI deflation narrows to -1.1% from -2.6%. Nominal GDP growth to average 4.8% in 2026.

🟢 [E2987] China's anti-involution initiatives are helping narrow deflation by addressing supply-demand imbalances and excessive price competition. The campaign has led to positive reactions in upstream material prices. MoF cut export VAT rebates on solar and battery products to reduce trade imbalance. These measures help manage external trade relations and manufacturing overcapacity spillovers.

🟢 [E2966] FAI growth expected to rebound to 3.5% in 2026 from -3.8% in 2025. Property investment to further decline as policymakers focus on destocking and managing financial risks without demand-boosting measures. Retail sales growth projected at 4.0% in 2026 from 3.7% in 2025. Investment to contribute 27.5% to GDP growth vs 15.3% in 2025.

🟢 [E2962] China's augmented fiscal deficit to expand modestly to 10.5% of GDP in 2026 from 9.8% in 2025, including RMB6.15trn general deficit, RMB4.6trn LGSBs, RMB1.5trn ultra-long special CGBs, and RMB500bn bank capital replenishment. Headline general fiscal deficit ratio maintained at 4.0% GDP. China has room to expand deficit ratio by 0.3-0.5ppt in H2 if needed.

🟢 [E2955] China may lower its GDP growth target to 4.5-5.0% in 2026 from ~5% in previous three years, signaling pragmatic approach to quality over quantity. Over 20 provincial governments revised growth targets lower by up to 0.5ppt including Guangdong and Zhejiang. The 15th FYP targets average growth of 4.5-5.0% for 2026-30 to meet the 2035 medium-term goal requiring 4.4% average growth for 2026-35.

🟢 [E2951] CACIB forecasts gradual CNY appreciation to USD/CNY 6.86 by end-2026 from current levels below 7.0. This is driven by export resilience, accelerating conversion of overseas export proceeds into CNY (December 2025 net FX settlement at record USD100bn), positive equity sentiment, and PBoC tolerance of managed appreciation. Fund flows remain supportive of China assets.

🟢 [E2954] China's exports remained remarkably resilient in 2025 at 5.5% growth despite exports to US declining 20%. Exports to rest of world expanded 10% leading to record goods trade surplus of USD1.19trn. CACIB forecasts 2026 export growth at solid 3.0%, with trade surplus widening to USD1.28trn. Net exports to contribute 1.0ppt to 4.7% GDP growth.

🟢 [E2975] China's high-tech sector output as share of GDP has grown significantly, with the 15th FYP emphasizing technological innovation and industrial development. CACIB highlights China's AI breakthroughs and emerging industries as positioning China as a major global competitor. Strong policy support, talent, resources, leading manufacturing capabilities, and vast market leave China well-positioned for technological advancement.

🟢 [E2959] China's net FX settlement climbed to record USD100bn in December 2025, showing favorable demand-supply dynamics for CNY. Corporates raising hedging ratios and increasing conversion of FX proceeds into CNY amid PBoC signals tolerating gradual appreciation. CNY-CNH basis narrowing shows improved sentiment. Fund flows remain supportive with equity and bond inflows.

🟡 [E2969] Property investment could further decline in 2026 as policymakers focus on house destocking and managing financial risks without demand-boosting measures. Additional easing expected including tax cuts, mortgage interest subsidies, and potential PBoC rate cuts, but measures unlikely aggressive enough to stabilize property market any time soon. Property remains biggest domestic drag on growth.

🟡 [E2956] Risks to CACIB's constructive China view include external uncertainties from US macro and trade policies, global geopolitical developments, and potential stronger-than-expected fiscal/monetary easing in DMs. If global tensions dampen risk appetite, China may not be immune to weaker global demand. However, if TACO trade repeats with stronger DM stimulus, China exports could benefit.

🟢 [E2950] CACIB holds a modestly constructive view on China in 2026, forecasting real GDP growth easing to 4.7% from 5.0% in 2025. They expect gradual reflation with GDP deflator turning positive in H2 2026, supported by continued policy easing including 10-20bp policy rate cuts and 50bp RRR cut by end-2026. The economy is expected to become more balanced with net exports remaining important but less significant.

🟢 [E2963] China's high-tech sector output as share of GDP has risen steadily since 2017, reaching approximately 24% by 2024-2025. Sectors include pharmaceutical, special equipment, aerospace equipment, electrical materials, battery, IT equipment, IT services, and R&D. This demonstrates China's structural shift toward technology-driven growth as guided by the 15th FYP.

🟢 [E2965] IMF recently raised global growth forecast for 2026 to 3.3% (same as 2025), expecting AI technology investments to help offset trade volatility headwinds. Global growth resilience, strong AI demand, and fiscal expansion in major economies could benefit China's exports. China's manufacturing capabilities and global supply chain integration will maintain high trade share.

🟢 [E2967] China's consumption tax reform expected to accelerate in 2026 to boost local fiscal revenues. Reform would shift from central tax to shared tax between central and local governments, and change collection from production to retail stage. This addresses local fiscal pressure while encouraging demand-side spending over supply-side investment.

💬 [E2970] Global AI demand is supporting China's exports, particularly high-value-added exports like semiconductors. The IMF raised 2026 global growth forecast to 3.3%, expecting AI technology investments to help offset trade volatility headwinds. China's export product breakdown shows continued climb up global value chain led by semiconductors, autos and ships.