"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 16 February: China to report February medium-term lending facility (MLF) scale of operations and interest rate
• 20 February: Hong Kong to report November 2025-January 2026 unemployment and underemployment statistics

The coming week is expected to be relatively quiet on the data front as the Chinese Lunar New Year holiday approaches. Markets in mainland China will be closed from 15-23 February, while Taiwan will observe holidays from 15 to 20 February. In Hong Kong, trading will close for the morning session on 16 February and will remain shut from 17 to 19 February. As such, trading activity and headline economic data releases will moderate.

On liquidity conditions, end‑of‑month MLF operations are expected to remain elevated to ensure that funding conditions stay broadly stable and accommodative through February. Liquidity dynamics followed a familiar pattern in January: early in the month, the natural return of year‑end funds, combined with the approaching tax period, briefly pushed money market rates higher. The People’s Bank of China (PBOC) responded with outright reverse repos and related tools to guide expectations and prevent any sustained money supply tightening. By mid‑January, a combination of outright reverse repos and MLF injections released a total of RMB 1 trillion (USD 145 billion) in medium‑ to long‑term liquidity, easing concerns and pull down the central tendency of rates. Money supply loosened further towards the month’s end and despite the usual turn‑of‑month pressures, overall funding stress remained contained, with the interest rate on 7-day repos closing lower at 1.59 per cent on the final trading day.

Looking ahead, February’s liquidity outlook will be shaped by several seasonal factors. Net government bond issuance is set to remain sizable, with weekly net payment amounts expected to exceed RMB 650 billion (USD 94 billion), which may temporarily weigh on liquidity. Cash demand ahead of the Lunar New Year could also create a funding gap of roughly RMB 900 billion (USD 130 billion). In addition, the tax period – delayed by the holiday schedule – will overlap with end-of-month demand as the tax declaration deadline falls on 24 February and fund transfers will take place on 25-26 February, potentially amplifying month‑end cash pressures. Even so, the PBOC has clearly signalled its commitment to maintaining smooth liquidity conditions, and pre‑holiday operations are likely to include outright reverse repos, MLF injections, and potentially larger‑than‑usual rollovers. The interest rate on outright reverse repos may also move lower in line with the MLF rate.

Equities rebounded modestly over the past week to reverse the previous week’s slide. As of Thursday, 12 February, the MSCI China Index rose by 1.3 per cent, the Shanghai Composite up 1.68 per cent, the Shenzhen Component advanced 2.71 per cent, and the ChiNext Index gained 2.83 per cent. Small‑ and mid‑cap stocks outperformed large‑cap peers, and growth equities continued to lead value.

Looking ahead, ByteDance’s 7 February launch of Seedance 2.0 marks a meaningful step forward in AI‑driven content production, transitioning from low‑predictability, “blind‑box” content generation to a more controllable and replicable workflow. The new platform is expected to accelerate the commercialization of AI‑generated animated series, short dramas, and potentially feature‑length films. As AI video production becomes more industrialised, the value distribution across the content ecosystem may shift accordingly. Companies with large, high‑quality intellectual property libraries stand to benefit from lower barriers to converting written content into video formats. Production studios capable of efficiently integrating AI tools, particularly those with scarce directorial or screenwriting resources, may also see structural advantages. Meanwhile, leading video‑focused developers are positioned to capture increased demand as the technology scales up.

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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