DBS Group Research economist Samuel Tse reports that recent US-China talks have led to a more constructive bilateral tone, improving the outlook for Chinese growth and the Chinese Yuan (CNY) rates [1]. Both countries concluded the first day of discussions with separate readouts, and while no concrete trade agreement has been reached, the positive tone suggests a gradual easing of trade tensions [1]. The US has extended an invitation for President Xi to attend a state visit in September, further reinforcing growth expectations and placing modest upward pressure on long-end China Government Bond (CGB) yields relative to the short end [1].
Markets are closely monitoring potential developments such as the easing of US tariffs, restrictions on advanced semiconductor exports, and China’s rare earth export controls, as progress in these areas would signal stronger Chinese growth momentum [1]. China’s exports have already increased by 14.5% year-on-year year-to-date, with shipments to ASEAN and the EU rising by around 20% [1]. However, exports to the US have declined by 10.9% year-to-date; a recovery in this segment could add approximately 1.1% upside to total exports, given the US remains China’s third-largest export destination [1].
A rebound in exports to the US could also have positive spillover effects on the Chinese labor market, further supporting the ongoing improvement in China’s domestic economic momentum [1].
CONCLUSION
Recent US-China talks have fostered a more optimistic outlook for Chinese growth and the Yuan, with markets anticipating potential easing of trade frictions. While no concrete agreements have been reached, positive developments and export trends are supporting improved economic momentum in China.