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.

Last week, before China shut down for the celebration of the lunar new year, top leader Xi Jinping made one of his traditional local inspection tours. Rather unusually, he chose to do it in Beijing, emphasizing the capital’s contribution to the innovation drive. This choice reflects how Xi’s pursuit of high technology and manufacturing strength has led to a change in his thinking about China’s regional development.

China’s technology companies face two big external obstacles to progress. Semiconductor companies and AI developers have to deal with US export controls while electric vehicle and green energy companies are up against protectionist barriers. But how effective are these barriers really?

Top leader Xi Jinping has decided that promoting technology and modernizing industry will continue to be the top priorities in China’s next five-year plan, as they are in the current plan. But as Tilly explains in this piece, that doesn’t mean China is simply doubling down on its existing industrial policy. There are important changes in priorities and strategies: a greater focus on commercializing products to drive growth, and a stronger role for central government coordination.

China’s policymakers appear unfazed by the continued housing-market decline, and contend that the market “has entered a bottoming phase.” Xiaoxi examines the evidence and finds the government’s argument uncompelling: with officials unlikely to provide much support and ongoing supply-demand imbalances in many cities, the property market will probably not bottom in 2026.

After the Shenzhen government abruptly reversed course on its partial bailout of China Vanke, the troubled developer’s bondholders convened on Wednesday to discuss its request for a repayment delay. Xiaoxi argues that the government’s approach to the company has been riddled with reversals because officials are struggling to balance conflicting policy goals for the property sector—and there may be more to come.

China’s property prices are declining at an accelerated pace, with the market stuck in a negative feedback loop the government seems unwilling to reverse. The property-support policies it has introduced have not gained traction, but there is little political effort going into improving their implementation. As Xiaoxi argues in this piece, a continued property downturn will cut against the government’s efforts to boost consumer spending.

The economic fallout from the war in Iran is broadening as disrupted energy markets drive oil and gas prices higher and leave policymakers with difficult dilemmas if they are to avoid a 1970s stagflationary cycle from unfolding. Our panel considers the latest developments on the ground in the Persian Gulf and assesses what this means for the US, Europe and emerging economies.

Since the US and Israel launched decapitation strikes against Iran’s leadership and oil and gas infrastructure has been targets of attacks, global markets have been rocked by uncertainty over how long Middle East energy supplies will be disrupted. Our panel assess the latest geopolitical situation and aims to map a path on what comes next for markets.

At the beginning of March, China’s government will announce its economic agenda and budget for 2026, as well as its next five-year plan. The leadership is sounding confident, with some reason, but there are many questions on policy. Exports are booming and industrial upgrading is proceeding, but the anti-involution campaign is scrambling incentives. Fiscal and monetary stimulus is cautious, even though growth has been slowing. Officials are talking up their plans to boost consumption, but household sentiment is still weak. In this webinar, our China team assess these and other issues, and explain what to expect from China macro and markets in 2026.