Recently, Deutsche Bank and several other major international banks have successively raised their forecasts for China’s economic growth, citing improved economic fundamentals as a key factor supporting the strengthening of the RMB exchange rate. Deutsche Bank’s chief economist for China, Xiong Yi, shared his views on China’s economic growth expectations, the RMB exchange rate, and the direction of policy efforts.
Economic Data and Policy Impact
China’s economic data for May, released by the National Bureau of Statistics, exceeded market expectations. The added value of industrial enterprises above designated size increased by 5.8% year-on-year, and the year-on-year growth rate of total retail sales of consumer goods was better than expected. Deutsche Bank raised its GDP growth forecasts for China in the second and third quarters based on these positive indicators.
Factors to Watch
Xiong Yi highlighted several factors to watch:
Fiscal Expenditure: Whether there will be a deceleration in fiscal expenditure in the second half of the year after the implementation of fiscal policies in advance.
Producer Prices: The still relatively low prices, especially the decline in producer prices (PPI), may exert pressure on business expectations.
Real Estate Market: Whether the momentum of stabilization and recovery in the real estate market can be further consolidated.
Promoting Consumption
The “trade-in for new” policy has achieved phased results in promoting commodity consumption. To further boost domestic consumption, Xiong Yi suggested focusing on promoting employment and consumption in the service industry, especially in areas such as education, health, and child care, where residents are willing to increase their spending under the trend of consumption upgrade.
Policy Outlook
Looking ahead, Xiong Yi emphasized several policy directions:
Fiscal Policies: Further boosting domestic consumption by increasing residents’ income, promoting employment, ensuring people’s livelihood, and encouraging childbirth.
Service Industry Development: Expanding the opening up of the service industry to increase consumption and employment.
Private Economy: Optimizing the development environment for the private economy to encourage scientific and technological innovation.
RMB Exchange Rate
Deutsche Bank is bullish on the offshore RMB exchange rate, even forecasting it to rise to 6.7 by the end of 2026. The main factors supporting the strengthening of the RMB exchange rate include the improvement of China’s economic fundamentals, continuous technological innovations, and the weakening of the US dollar.
AI Competitiveness and Investment Opportunities
China has set a bold objective to become the global leader in AI by 2030, with AI potentially adding $600 billion to China’s economy. The recent confidence in China’s capital market, partly due to AI advancements like DeepSeek, highlights the significant investment opportunities in this sector.
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