Gavekal Dragonomics

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.

China’s pivot to economic stimulus was led by the central bank, but most pundits have been dismissive: monetary policy doesn’t matter, they said, what matters is whether there is going to be a big fiscal stimulus. In this piece, Andrew asks: what if the current obsession with a massive fiscal package is wrong, and the real problem is with monetary policy? What if China’s economy needs not another injection of debt-financed public spending, but simply for lower interest rates to work?

This week, a set of high-level announcements and media leaks indicated China’s government is finally trying to get ahead of expectations—and that means a big shift for financial markets. Andrew and Wei argue that although there are meaningful implications for immediate growth, the government must continue to deliver on their promises to sustain the recent rally in Chinese assets.

China’s government has announced plans for a RMB1trn national venture-capital fund, putting yet more state money into its commitment to high-tech development. The proposed fund’s size and structure are similar to the “Big Fund” launched a decade ago to accelerate the development of the semiconductor sector. But as Tilly explains in this piece, the goal this time is even more ambitious: to jump-start an ecosystem of hard-tech startups.

New models from AI startup DeepSeek rival some of the capabilities of leading US models at a fraction of the cost. Tilly argues that while some claims about the models are overstated, they vividly demonstrate the ability of Chinese AI companies to innovate around US restrictions—and shifts in the AI industry mean those restriction may become even less of an impediment in the future.

US President Joe Biden escalated the semiconductor war against China with a fresh round of chip export controls, and for the first time, China retaliated immediately with export controls on critical minerals and some technology products. Tilly argues that these restrictions are designed to inflict actual pain, and technology controls are increasingly a two-way street.

China’s government is set up for another test of whether it will exceed or disappoint market expectations on support for real estate. Xiaoxi argues that how officials end up managing Vanke will provide an indication of how ready they are to support property developers more broadly, and that will in turn have a real impact on homebuying sentiment—a test that comes at a pivotal moment for the property sector.

In the first days of 2025, Chinese equity markets took a leg down, long-term bond yields hit all-time lows and the renminbi weakened. The government’s promises of more stimulus have not been enough to stabilize expectations. What signals could be more decisive? Andrew makes the case that the most effective policy move would be not more social-welfare support, but a more direct intervention in the property market.

The most straightforward way of judging whether China’s still-evolving stimulus package is working is whether it reignites animal spirits in the property market. The top-level signaling on property has clearly changed, with an unambiguous mandate to put a floor under the long-running decline, and there are some early signs homebuyers are getting back into the market.

European policymakers face the biggest strategic upheaval since World War II and a potential trans-Atlantic trade war for good measure. On the plus side for those with a Keynesian bent, the European Union may be spurred to cast off self-imposed fiscal rules which have constrained its performance over the last 15 years. In this webinar, Anatole and Cedric assess the choices that Europe faces and what different outcomes will mean for growth and markets.

Technological optimism seems to be doing what macroeconomic policy could not: change foreign investors’ minds about China. At the same time the nascent rebound in the property market is at risk of stalling out amid a policy vacuum. And signals of greater comity between Donald Trump and Xi Jinping have not prevented the escalation of US tariffs on China. In this webinar, our China team assesses the conflicting signals for the outlook for 2025.

DeepSeek stunned the world with the release of two new AI models with performance comparable to models from the US market leaders, but which the Chinese company developed at a fraction of the cost and with less powerful chips. Tilly Zhang, Gavekal’s technology analyst, founding partner Louis-Vincent Gave and US economist Will Denyer assessed the extent of DeepSeek’s achievement and examined what it means for China’s AI development, US export controls, and the future of the US tech stock bull market.