Gavekal Dragonomics

China’s central bank is once again erring on the side of caution. It is on track to reduce rates by much less in 2025 than first expected—expectations that the PBOC itself created with a formal shift in its monetary-policy stance. This is a frequent pattern for the PBOC, which typically moves rates much less than other central banks. In this piece, Wei argues that the PBOC’s ingrained caution is less a philosophical choice than an institutional constraint, stemming from its lack of independence and multiple mandates.

Unless something changes radically in the next few days, China is facing a major growth shock from the US imposition of massive tariffs. The question now is how China’s government will respond to intensifying growth fears. Wei argues that the first step should be an easing of monetary policy, and possibly more direct intervention from the central bank in financial markets.

The People’s Bank of China has been busy over the past year as its new governor, Pan Gongsheng, has overseen multiple interventions in financial markets and attempted risky policy changes. Wei argues that Pan’s aggressive policymaking style, along with a green light from top policymakers for more easing, means the chances of a large interest-rate cut are rising.

Global technology competition is increasingly defined by the ways in which states support their own tech ecosystems while trying to impede those of their rivals. Here, we examine how China supports new tech industries not just through subsidies but through conjuring up state-led demand, and dissect China’s role in the US pharmaceutical supply chain to assess how much risk the sector faces from American tariffs and import restrictions.

Breaking up is hard to do. The US and China may both be deeply uncomfortable with how their economies have become intertwined, but decoupling may be even more uncomfortable. In this edition of Gavekal Technologies Briefing, Laila Khawaja explains why the US decided to let Nvidia resume selling high-end chips to China, Tom Hanock reports that the boom in Chinese biotech depends on access to the US market, and Arthur Kroeber reviews a brilliant new book about the deep symbiosis between Apple and Chinese state capitalism. Also, Tilly Zhang examines state capitalism’s latest efforts to make its finances more efficient.

China’s government is rethinking how it will fund the next round of technological development. Tilly argues that policymakers want to move away from the decentralized model that relied heavily on local authorities, and toward a more centralized system in which financial institutions play a bigger role. The intended result of that shift is not a big increase in overall funding, but a more disciplined and controlled process.

China’s property market has been in a funk for four years now, and hopes for government intervention have consistently disappointed. Xiaoxi argues that this week’s Central Urban Work Conference showed no urgency for a major change, instead signaling acceptance of a slow- or no-growth future for the property sector. Nonetheless, policymakers will probably need to introduce some measures in coming months to prevent the housing downturn from getting even worse.

China’s housing sales have broadly stabilized for almost a year now. Does that mean the worst is now over for developer finances? Xiaoxi argues that for private-sector developers, which have suffered the most, probably not quite yet. But for state-owned developers, some financial stabilization is now in sight.

China’s new-housing sales have stabilized, and policymakers have vowed to cut interest rates. Does this combination mean a meaningful rebound is ahead? Xiaoxi argues that the answer is probably not, as the relentless shift in demand towards the secondary market means rate cuts might mostly just boost sales of existing units.

So far in 2025, the US economy has defied all the worst-case forecasts of looming stagflation. In this Gavekal webinar, US economists Will Denyer and Tan Kai Xian assess the strength and depth of this apparent Goldilocks dynamic, consider the impact of the newly passed Big Beautiful Bill on the US budget, and discuss the implications for financial markets. Gavekal head of research Arthur Kroeber offers updates on the tariff war latest.

Investors last week seemed to be betting that the United States would hold off on directly attacking Iran. Now, after the weekend’s US airstrikes and Trump's push for a ceasefire, are all parties really ready to cease hostilities? Or is this just the start of a regional war in the Middle East that could severely disrupt oil supplies and spark a surge in the crude price? Our team assesses the latest developments on the ground and consider the vulnerabilities of the major economic regions should the worst occur and the price of oil skyrocket.

The meeting focused on China's economic performance, global influence and potential future scenarios. The panelists debated the potential of the renminbi as a reserve currency, China's economic model and capital controls, and the implications of China's debt situation for global markets.