Pan Gongsheng, governor of the People’s Bank of China (PBOC), during the Lujiazui Forum in Shanghai, China, on Wednesday, June 19, 2024.
Bloomberg | Bloomberg | Getty Images
BEIJING — China’s financial risks have dropped, including from local government debt, People’s Bank of China Governor Pan Gongsheng said in state media interviews published late Thursday.
Pan also said the central bank will work with the Ministry of Finance to enable China to reach its full-year growth targets. He said that monetary policy would remain supportive.
Beijing has increasingly prioritized addressing risks from high debt levels in the real estate sector, which is closely linked to local government finances. International institutions have long called on China to reduce its ballooning debt levels.
“China’s overall financial system is sound. The overall risk level has significantly declined,” Pan said in an interview released by state broadcaster CCTV. That’s according to a CNBC translation of the transcript.
He noted that “the number and debt levels of local government financing platforms are declining,” and that the cost of their debt burden has “dropped significantly.”
The lack of regulatory oversight often meant indiscriminate funding of infrastructure projects with limited financial return. That raised the debt burden on LGFVs, for which the local governments are responsible.
Coordinated efforts in the last year by local governments, financial institutions and investors have “alleviated the most pressing repayment needs of the weakest LGFVs and boosted market sentiment,” S&P Global Ratings analysts said in a July 25 report, one year since Beijing made a concerted effort to reduce LGFV risk.
However, the report said LGFV debt “remains a big problem.” The analysis found that more than 1 trillion yuan ($140 billion) of LGFV bonds are due to mature over the next couple of quarters, while such debt growth remains in the high single digits.
Exacerbating debt challenges is China’s slowing growth. The economy grew by 5% in the first half of the year, raising concerns among analysts that the country would not be able to reach its target of around 5% growth for the full year without additional stimulus.
The International Monetary Fund on Aug. 2 said in its regular review of China’s financial situation that macroeconomic policy should support domestic demand to mitigate debt risks.
“Small and medium-sized commercial and rural banks are the weak link in the large banking system,” the IMF report said, noting China has nearly 4,000 such banks that account for 25% of total banking system assets.
Addressing real estate
The number of high-risk small and medium-sized banks has dropped to half of what it was at their peak, Pan said via state media on Thursday, without sharing specific figures.
In real estate, he pointed out the mortgage down payment ratio has reached a record low of 15% in China, and that interest rates are also low. Pan noted central authorities are helping local governments with financing so they can acquire property and turn them into affordable housing or rental units.
Property and related sectors once accounted for at least one-fourth of China’s economy. But in recent years Beijing has sought to shift the country away from relying on real estate for growth, toward advanced tech and manufacturing.
Pan’s public comments come after a week of heightened volatility in the government bond market.
Earlier on Thursday, the PBOC made the rare decision to delay a rollover of its medium-term lending facility in favor of a 577.7 billion yuan capital injection via another tool called the 7-day reverse repurchase agreement. Pan highlighted that 7-day tool in June when discussing PBOC efforts to revamp its monetary policy structure.
The PBOC is scheduled Tuesday morning to release its monthly loan prime rate, another benchmark rate. The central bank cut the 1-year and 5-year loan prime rates by 10 basis points each in July, after keeping the 1-year unchanged for 10 straight months, and the 5-year unchanged for four months.
Chinese national flags flutter on boats near shipping containers at the Yangshan Port outside Shanghai, China, February 7, 2025.
Go Nakamura | Reuters
BEIJING — China’s reaction to new U.S. tariffs will likely focus on domestic stimulus and strengthening ties with trading partners, according to analysts based in Greater China.
Hours after U.S. President Donald Trump announced additional 34% tariffs on China, the Chinese Ministry of Commerce called on the U.S. to cancel the tariffs, and vowed unspecified countermeasures. The sweeping U.S. policy also slapped new duties on the European Union and major Asian countries.
Chinese exports to the U.S. this year had already been hit by 20% in additional tariffs, raising the total rate on shipments from China to 54%, among the highest levied by the Trump administration. The effective rate for individual product lines can vary.
But, as has been the case, the closing line of the Chinese statement was a call to negotiate.
“I think the focus of China’s response in the near term won’t be retaliatory tariffs or such measures,” said Bruce Pang, adjunct associate professor at CUHK Business School. That’s according to a CNBC translation of the Chinese-language statement.
Instead, Pang expects China to focus on improving its own economy by diversifying export destinations and products, as well as doubling down on its priority of boosting domestic consumption.
China, the world’s second-largest economy, has since September stepped up stimulus efforts by expanding the fiscal deficit, increasing a consumption trade-in subsidy program and calling for a halt in the real estate slump. Notably, Chinese President Xi Jinping held a rare meeting with tech entrepreneurs including Alibaba founder Jack Ma in February, in a show of support for the private sector.
The policy reversal — from regulatory tightening in recent years — reflects how Beijing has been “anticipating the coming slowdown or even crash in exports,” Macquarie’s Chief China Economist Larry Hu said in a report, ahead of Trump’s latest tariff announcement. He pointed out that the pandemic-induced export boom of 2021 enabled Beijingto “launch a massive regulatory campaign.”
“My view stays the same,” Hu said in an email Thursday. “Beijing will use domestic stimulus to offset the impact of tariffs, so that they could still achieve the growth target of ‘around 5%.'”
Instead of retaliatory tariffs, Hu also expects Beijing will focus on still using blacklists, export controls on critical minerals and probes into foreign companies in China. Hu also anticipates China will keep the yuan strong against the U.S. dollar and resist calls from retailers to cut prices — as a way to push inflationary pressure onto the U.S.
China’s top leaders in early March announced they would pursue a target of around 5% growth in gross domestic product this year, a task they emphasized would require “very arduous work” to achieve. The finance ministry also hinted it could increase fiscal support if needed.
About 20% of China’s economy relies on exports, according to Goldman Sachs. They previously estimated that new U.S. tariffs of around 60% on China would lower real GDP by around 2 percentage points. The firm still maintains a full-year forecast of 4.5% GDP growth.
Changing global trade
What’s different from the impact of tariffs under Trump’s first term is that China is not the only target, but one of a swath of countries facing hefty levies on their exports to the U.S. Some of these countries, such as Vietnam and Thailand, had served as alternate routes for Chinese goods to reach the U.S.
At the Chinese export hub of Yiwu on Thursday, businesses seemed nonchalant about the impact of the new U.S. tariffs, due to a perception theiroverseas competitors wouldn’t gain an advantage, said Cameron Johnson, a Shanghai-based senior partner at consulting firm Tidalwave Solutions.
He pointed out that previously, the U.S. had focused its trade measures on forcing companies to remove China from their supply chains and go to other countries. But Chinese manufacturers had expanded overseas alongside that diversification, he said.
“The reality is this [new U.S. tariff policy] essentially gives most of Asia and Africa to China, and the U.S. is not prepared,” Johnson said. He expects China won’t make things unnecessarily difficult for U.S. businesses operating in the country and instead will try harder to build other trade relationships.
Since Trump’s first four-year term ended in early 2021, China has increased its trade with Southeast Asia so much that the region is now Beijing’s largest trading partner, followed by the European Union and then the U.S.
The 10 member states of the Association of Southeast Asian Nations (ASEAN) joined China, Japan, South Korea, Australia and New Zealand in forming the world’s largest free trade bloc — the Regional Comprehensive Economic Partnership (RCEP) — which came into being in early 2022. The U.S. and India are not members of the RCEP.
“RCEP member countries will naturally deepen trade ties with one another,” Yue Su, principal economist, China, at the Economist Intelligence Unit, said in a note Thursday.
“This is also partly because China’s economy is likely to remain the most — or at least among the most—stable in relative terms, given the government’s strong commitment to its growth targets and its readiness to deploy fiscal policy measures when needed,” she said.
Uncertainties remain
The extent to which all countries will be slapped with tariffs this week remains uncertain as Trump is widely expected to use the duties as a negotiating tactic, especially with China.
“Unlike some of the optimistic market forecasts, we do not expect a US-China bilateral grand bargain,” Ting Lu, chief China economist at Nomura, said in a note Thursday.
“We expect tensions between these two mega economies to worsen significantly,” he said, “especially as China has been making large strides in high-tech sectors, including AI and robotics.”
Check out the companies making headlines in midday trading. Lululemon – The athleisure company saw shares plunging more than 11% after President Donald Trump’s imposition of tariffs on countries where the firm imports a big portion of its products. In 2024, Lululemon sourced 40% of its products from Vietnam, which was hit by a 46% tariff by the administration. Almost 90% of Lululemon’s products are made in Vietnam, Cambodia, Sri Lanka, Indonesia and Bangladesh. Deckers Outdoor – Shares of the footwear company plunged more than 14% following Trump’s reciprocal tariffs rollout. The Ugg maker has 68 supply chain partners in Vietnam and 125 suppliers in China. Nike – The athletic apparel stock declined 12.1% following the Trump administration’s wide-ranging tariffs upon major trading partners. Nike manufactures roughly half its footwear in China and Vietnam, which will be subject to tariff rates of 54% and 46%, respectively. Discount retail stocks – Shares of Five Below and Dollar Tree shed more than 27% and 9%, respectively, on the heels of the new reciprocal tariff announcement. Both companies are big sellers of imported goods, and Dollar Tree CEO Michael Creedon has said that the company might increase prices to offset the tariff impact. Bank stocks – Shares of several banks Bank stocks pulled back as traders reckoned with the potential economic fallout of Trump’s tariff policy. Shares of Goldman Sachs and Morgan Stanley each slid nearly 8%, while JPMorgan Chase , Bank of America and Citi fell more than 5%, 9% and 10%, respectively. Ford – The automaker’s stock declined nearly 4%. On Thursday, Ford announced that it’s offering employee pricing to all customers on multiple models in a program called “From America for America.” Trump’s 25% tariffs on imported vehicles went into effect Thursday. Big Tech stocks — Shares of mega-cap technology names plummeted amid investor concerns that the businesses will face pressures from Trump’s tariffs. Tesla declined nearly 5%, while shares of Amazon and Apple fell more than 7% and 8%, respectively. Alphabet shares also moved more than 3% lower. Semiconductor stocks – Shares of chipmakers also took a hit after the tariff announcement, even after the White House said that semiconductors wouldn’t be subject to the new levies. Shares of Nvidia and Advanced Micro Devices both fell more than 6%, while Broadcom declined more than 8% and Qualcomm slumped more than 9%. Microsoft – Shares shed about 3% after Bloomberg, citing people familiar with the matter, reported that the company is scaling back its data center projects around the world. RH – The luxury home furnisher nosedived 43.5%, on track for its worst day on record after fourth-quarter earnings and forward guidance came in weaker than expected. RH earned $1.58 per share, excluding items, on $812 million in revenue, while analysts polled by LSEG penciled in $1.92 per share and $830 million in revenue. CEO Gary Friedman told analysts that the company was operating within the ” worst housing market in almost 50 years .” Wayfair – Shares tumbled 25% on the back of Trump’s newly announced tariffs, with countries such as Vietnam, Thailand, Cambodia and the Philippines all receiving higher tariffs than the baseline 10%. During a February earnings call, Wayfair CEO Niraj Shah said that these aforementioned nations “have grown as places where folks have factories and where our goods are coming from.” Lyft – The ride-sharing stock dropped more than 9% after receiving a double downgrade to underperform from buy at Bank of America, citing increasing headwinds from autonomous vehicles. Lamb Weston – Shares gained more than 9% after the food processing company posted better-than-expected third-quarter results. Lamb Weston reported adjusted earnings of $1.10 per share on $1.52 billion in revenue, while analysts polled by FactSet were expecting 86 cents per share on $1.49 billion in revenue. — CNBC’s Alex Harring, Hakyung Kim, Yun Li and Lisa Kailai Han contributed reporting.
Check out the companies making headlines before the bell. Lululemon – Shares tumbled more than 12% on the heels of President Donald Trump’s new wide-ranging tariffs . According to an SEC filing , the company sourced 40% of its products from Vietnam in 2024 – a country that was slammed with a 46% tariff. Almost 90% of Lululemon’s products are made in Vietnam, Cambodia, Sri Lanka, Indonesia and Bangladesh. Nike — Shares slumped about 9% after the United States lifted tariffs Wednesday. Nike manufactures roughly half its footwear in China and Vietnam, which will be subject to tariff rates of 54% and 46%, respectively. Discount retailers — Dollar Tree and Five Below tumbled more than 10% and 15%, respectively. Dollar Tree CEO Michael Creedon previously said the company may raise prices on items to offset the impact of new U.S. tariffs. The two companies are big sellers of imported goods. Ford — The automaker slipped 2.3%. Reuters reported that Ford will offer employee pricing to all customers on multiple models to absorb tariff costs, in a program called “From America for America.” Big Tech — Shares of mega-cap technology companies such as Nvidia fell as investors worried that the businesses will come under pressure from President Donald Trump’s new tariff regime. Nvidia dropped more than 5%, as did Tesla . Shares of Amazon.com slid more than 6%. Apple declined by more than 7%. Microsoft — The tech stock declined 2.3%. Bloomberg released another report stating that the XBox and Windows company is scaling back data center projects in the U.S. and overseas. JPMorgan , Citi , Goldman Sachs , Morgan Stanley — Bank stocks retreated sharply early Thursday as investors weighed the economic fallout of Trump’s tariff policy. Shares of JPMorgan Chase were down 3.8%, while Citi, Goldman Sachs and Morgan Stanley all slid more than 4%. RH — The luxury home furnisher plunged 28% after posting weaker fiscal fourth-quarter earnings and first-quarter guidance than Wall Street had estimated. RH earned $1.58 per share, excluding one-time items, on $812 million in revenue in the fourth quarter, while analysts polled by LSEG had penciled in $1.92 per share and $830 million in revenue. CEO Gary Friedman acknowledged to analysts that the company was operating in the “worst housing market in almost 50 years.” Deckers Outdoor — The footwear company that makes Ugg boots sold off more than 12% after the Trump administration’s reciprocal tariffs rollout. Deckers has 68 supply chain partners in Vietnam and 125 suppliers in China. Wayfair — The furniture retailer weakened about 12% on the back of higher U.S. tariffs on goods from Cambodia, Vietnam, Thailand and the Philippines. CEO Niraj Shah said during an earnings call in February that the countries “have grown as places where folks have factories and where our goods are coming from.” — CNBC’s Alex Harring, Jesse Pound, Sarah Min and Sean Conlon contributed reporting