"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 1 December: RatingDog to report China Manufacturing Purchasing Managers’ Index (PMI) for November
• 1 December: Hong Kong to report October retail sales statistics
• 3 December: Hong Kong to report Q3 2025 statistics on vessels, port cargo and containers
• 3 December: RatingDog to report China Services PMI for November
• 5 December: Taiwan to report October Consumer Price Index
• 5 December: Taiwan to report October Producer Price Index

Next week continues to be relatively quiet on the data front, with few major releases scheduled for Chinese markets. As we move into December, it is worth reviewing fiscal developments from January through October.

Fiscal operations in 2025 have been characterized by muted revenue recovery and structurally adjusted expenditures for mainland China, broadly in line with budget expectations. State revenues remained under pressure, primarily due to a sustained decline in land transfer income, while spending accelerated. For the first 10 months, government revenue progress reached 55 per cent, reflecting significant downward pressure from state-owned land transactions.

On the expenditure side, growth was supported by robust issuances of special-purpose and special treasury bonds. Issuance patterns were front-loaded, with notable structural shifts: allocations for land reserves and debt resolution expanded sharply, partially crowding out infrastructure-related funding. Progress has been substantial since the rollout of the “6+4+2” debt resolution framework for local governments in 2024. About one-third of both the three-year RMB 6 trillion (USD 847 billion) tranche and the five-year RMB 4 trillion (USD 565 billion) tranche had been released thus far, exceeding the annual target by RMB 500 billion (USD 71 billion).

Debt resolution and cleared overdue payments have already absorbed RMB 3.88 trillion (USD 548 billion) this year, well above the initial RMB 2.8 trillion (USD 395 billion) estimate and up 14.7 per cent year-on-year. For 2026, fiscal policy is expected to remain steady yet progressive to provide a strong start for the 15^th Five-Year Plan. The budget deficit is projected near 4 per cent of GDP, signalling continuity in support measures. Quota for new special-purpose bonds may rise to around RMB 5 trillion (USD 706 billion) to settle debts, while special treasury bonds are likely to remain near RMB 1.8 trillion (USD 254 billion). Further allocations under the “Two New” initiative could increasingly target services consumption, alongside continued measures to bolster the capital bases of banks and other financial institutions.

Overall, fiscal operations in 2026 will likely balance revenue constraints with increasing expenditures. With household and corporate confidence still subdued and leverage capacity limited, fiscal stimulus will remain a key growth driver for China. The responsiveness of GDP to broad fiscal spending may strengthen further. Persistent declines in land transfer income underscore the need for alternative funding channels, including debt issuances, to sustain spending momentum.

On equities, as of Thursday, 27 November, the MSCI China Index advanced 2.47 per cent week-on-week to reverse last week’s decline. The Shanghai Composite gained 1.05 per cent, the Shenzhen Component rose 2.69 per cent, and the ChiNext Index surged by 3.81 per cent. Small-cap stocks outperformed, with growth names slightly ahead of value peers. Seasonality remains a key factor: November historically shows weak or even negative correlation with fundamentals, as markets strategize positioning for the new year. This pattern typically favours speculative themes and smaller names over value and stability.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.

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