UBS: China Weekly - Soft Jan Growth, Export VAT Rebate Cuts, Targeted Rate Cuts, Credit Surprise
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UBS reports that January high-frequency data indicates softening economic momentum in China. Property sales across 30 major cities plummeted 40% year-over-year, while auto retail and wholesale volumes dropped 32% and 40%, respectively. Meanwhile, port cargo throughput edged up to 3% growth.
On the policy front, authorities announced the elimination of export value-added tax rebates for solar products starting April 2026 and phased reductions for battery rebates. The People's Bank of China implemented targeted rate cuts of 25 basis points on structural monetary tools and lowered commercial real estate down payments to 30%. December credit data exceeded expectations with new renminbi loans of 910 billion yuan, although aggregate credit growth slowed to 8.3%.
These policy adjustments aim to manage trade tensions and stimulate targeted sectors. However, consumer lending continues to lag, highlighting persistent domestic demand challenges. UBS maintains its baseline forecast for 10 to 20 basis points of policy rate cuts and 25 to 50 basis points of reserve requirement ratio cuts in 2026. The firm reiterates its 4.5% GDP growth projection for the year while noting that this forecast carries upside risks, supported by ongoing fiscal support and monetary easing measures.