Chinese markets show resilience amid US debt volatility — South China Morning Post
Chinese President Xi Jinping is arriving in Washington, US, for a summit with US President Donald Trump amid strong Chinese export figures and discussions about the state of the two countries’ financial markets. Last month, China’s exports grew by 25% at an annualized rate, while the country’s trade surplus reached $119 billion. China’s surplus in trade with the US, according to the cited data, increased by 44% to $29 billion.
This is stated in an analysis by the South China Morning Post. The publication notes that the US still carries significantly greater weight in global financial markets: it accounts for nearly two-thirds of the capitalization of the MSCI All-Country World Index and 40% of the global bond market. The dollar retains its status as the leading reserve currency, while the publication calls US capital markets the deepest and most liquid.
Government bonds
At the same time, Chinese government bonds have delivered nearly 3% in returns since the beginning of the year, excluding exchange-rate fluctuations, according to Bloomberg. The yield on China’s 10-year government bonds fell to 1.6%, close to a historic low. By comparison, the yield on 10-year US bonds exceeded 5% last week, the highest level since 2007.
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JPMorgan links the attractiveness of yuan-denominated financing to China’s prolonged period of low inflation and accommodative monetary policy. Issuance of offshore yuan bonds, known as dim sum bonds, by borrowers outside China has increased substantially over the past year. In the publication’s view, this has contributed to the recovery of Hong Kong’s capital markets.
The yuan and artificial intelligence
The yuan strengthened to its highest level against the dollar since January 2023, despite China’s weak domestic economy and the recent strengthening of the US currency. Research firm Gavekal indicated in March that the potential for further yuan appreciation is supported by China’s substantial trade surplus.
The article names China’s artificial intelligence sector as a separate factor for investors. Bank of America believes that China’s AI ecosystem is less tied to the US capital expenditure cycle, while JPMorgan points to demand for monetization and the applied use of AI technologies. At the same time, the publication notes that the resilience of China’s bond market is linked to the weakness of the domestic economy and expectations of further monetary easing: monthly retail sales growth did not exceed 1% for five consecutive months.
