"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 24 March: China to host Boao Forum for Asia until 27 March
• 25 March: China to conduct March medium-term lending facility (MLF) operation scale and interest rate
• 26 March: Hong Kong to report February external merchandise trade statistics 
• 26 March: Taiwan to report February employment and unemployment data
• 27 March: China to report February industrial profits
• 27 March: Hong Kong to report December 2025 wage and payroll statistics

Next week will be relatively light in terms of major economic data releases concerning China markets. Attention will turn to the Boao Forum for Asia, which convenes policymakers, business leaders, and academics to discuss regional and global economic issues.

This year’s forum takes place immediately after the Mainland’s “Two Sessions” and coincides with the first full year after the operational launch of the Hainan Free Trade Port where the event is hosted. Discussions are expected to touch on China’s 15^th Five-Year Plan framework that includes a softer growth goal and a quest for technological self-reliance, as well as the longer‑term development paths for the Hainan Free Trade Port and China’s Greater Bay Area, particularly in areas related to broader trade, innovation, and structural reforms.

Industrial profit data for enterprises above the designated size for early 2026 have yet to be released due to Spring Festival holidays. Nevertheless, recent trends point to a continued improvement in profitability momentum for January-February. Profit growth rebounded sharply in December, with year‑on‑year growth accelerating to 5.3 per cent from -13.1 per cent in November. For the full year, total profits rose by 0.6 per cent, improving strongly relative to the January-November period to unlock five straight months of positive momentum.

By industry, upstream raw materials and midstream equipment manufacturing continued to post relatively solid profit growth, while profitability in most downstream consumer goods sectors softened. Inventory dynamics also improved: by end-December, the nominal growth rate of finished goods inventories eased to 3.9 per cent while the inventory‑to‑sales ratio declined notably to 48.6 per cent. The combination of slower inventory accumulation and a lower inventory‑to‑sales ratio suggests easing inventory pressures alongside improving sales conditions, which are early signs of demand recovery. At the same time, the concurrent deceleration in revenue and inventory growth indicates that firms remain cautious. Overall, industrial profitability continues to show gradual improvement.

On the liquidity front, following the medium‑term lending facility (MLF) operation on 16 March, a total of RMB 450 billion (USD 65.5 billion) in one‑year loans and RMB 20.5 billion (USD 3 billion) in 7‑day reverse repos are set to mature on 25 March. China’s central bank injected RMB 500 billion (USD 73 billion) through outright reverse repo operations on 16 March, resulting in a net liquidity contraction that is also the first reduction since June 2025. This adjustment partly reflects the substantial addition of medium‑term supply of RMB 1.9 trillion (USD 276 billion) during the first two months of the year, as well as persistently ample post‑holiday liquidity conditions. It may also be interpreted as a signal that a reserve requirement ratio cut could be approaching, which warrants close attention to the outcome of MLF operations.

Chinese equities slipped over the past week. As of Thursday, 19 March, the MSCI China Index declined by 1.45 per cent, while the Shanghai Composite fell by 2.17 per cent. The Shenzhen Component and ChiNext indices also retreated, declining by 2.66 per cent and 0.04 per cent, respectively. Large‑cap stocks outperformed small and mid‑caps, and value sectors continued to outperform growth, reflecting a more defensive market tone amid limited near‑term policy catalysts.

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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