RMB: Postcard from China
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Based on a three-day investor research trip to Beijing and Shanghai by UBS, discussions with policymakers, scholars, and market participants reveal that China's geopolitical landscape is improving faster than its domestic economy. US-China relations are stabilizing, and AI advancements are boosting confidence. However, the recovery remains distinctly K-shaped: the new economy (AI-related equipment and renewables) is thriving, while the old economy (consumption and property) remains structurally weak.
The new economy's strength currently offsets the old economy's drag. Real GDP growth of approximately 5% in 1Q26 is likely the peak for the year, with growth expected to moderate thereafter. Respondents are confident China will achieve its 4.5-5% growth target for 2026, gradually slowing to around 4% over the next decade as the country reaches high-income status.
The Chinese yuan stands out as the clearest bullish signal from the trip. Every respondent views the RMB as being on a definitive appreciation path, driven by corporate foreign-exchange conversion. The consensus year-end forecast for USD/CNY sits in the 6.50-6.70 range. Meanwhile, the property sector faces permanent structural changes, with over 70% of surveyed developers and investors not expecting market stabilization before 2027. Fiscal policy is expected to remain the primary growth lever, utilizing targeted rather than broad stimulus measures.