Car Dealers in China's Yangtze Delta Warn of Financial Strain Amid Prolonged Auto Price War

Economic

Summary:

:Auto dealers in the Yangtze River Delta have publicly urged manufacturers to revise sales strategies, citing unsustainable inventory levels, financing disruptions...

Dealers in Economic Heartland Raise Alarm Over Price Pressures

A coalition of dealer associations across the Yangtze River Delta—encompassing Shanghai and the provinces of Jiangsu, Zhejiang, and Anhui—has issued a rare public appeal to automakers, warning of “severe challenges” to their operations. Representing a region that contributed 23% of China’s domestic auto sales in 2024, the dealers’ message underscores the widening fallout from an unrelenting price war in the world’s largest vehicle market.

The joint statement, published via official WeChat channels, highlights a convergence of stress factors: elevated inventory, chaotic market competition, and increasing risk of capital chain rupture. This marks a growing financial fracture in the dealership sector, which sits downstream in the automotive value chain and often bears the brunt of aggressive discounting campaigns.

Below-Cost Sales Pressure Margins and Violate Competition Principles

Dealers allege that some automakers are enforcing sales at prices below cost—a practice that not only squeezes profitability but also raises legal and regulatory concerns. Although no specific companies were named, the accusation suggests a causal relationship between OEM-imposed pricing strategies and the rising financial distress among dealers.

Such practices may breach China's recently amended Anti-Unfair Competition Law, which explicitly strengthens prohibitions on forced below-cost pricing. The revised law, due to take effect in October, is expected to offer dealers stronger legal grounds to resist coercive pricing measures, although enforcement remains uncertain in the interim.

Inventory Surge and Loan Suspensions Amplify Financial Risk

A key issue raised by the associations is the unsustainable level of vehicle inventory. High stock volumes tie up working capital, burden storage capacity, and increase the risk of depreciation. Compounding this, since June, many consumers in the region have faced sudden suspensions in car loan disbursement—effectively freezing transactions and exacerbating dealer cash flow problems.

This is a direct causal chain: blocked financing delays vehicle deliveries, leading to unsold units accumulating on dealer lots, which in turn strains liquidity and increases the likelihood of capital chain breakdowns. Dealers are caught between falling revenue and mounting financial obligations to suppliers and automakers.

Persistent Price War Defies Regulatory Guidance

The latest outcry follows similar warnings from dealer associations in Henan and Jiangsu, and mirrors broader concerns from suppliers. Despite previous calls from regulators to end aggressive discounting tactics, automakers appear to be continuing deep price cuts in pursuit of market share, even at the cost of profitability and supply chain stability.

This ongoing price war reflects a market that has prioritized volume over sustainability. The strategy, while effective in clearing short-term stock, undermines long-term brand equity and financial viability across the sector. The persistence of this model reveals a correlation between intense market competition and deteriorating financial conditions across the automotive distribution network.

Dealers Propose Market-Based Reforms

In their joint letter, the four associations suggested several reforms aimed at restoring equilibrium. These include allowing dealers to negotiate reasonable inventory ceilings, recalibrating sales targets to reflect actual market absorption capacity, and enhancing coordination between manufacturers and dealers.

Such measures reflect a shift toward a more demand-driven sales model, where dealers play a more active role in balancing supply with regional consumer dynamics. If adopted, these changes could mitigate the misalignment between top-down production quotas and bottom-up retail realities.

The Yangtze Delta dealers’ coordinated appeal signals a deeper malaise within China’s automotive distribution model. With price wars eroding profit margins, and financial stress rising across supply chains, the sector faces growing systemic risk. As the revised anti-unfair competition law looms and consumer financing remains unreliable, both automakers and regulators must address the underlying structural issues—starting with more sustainable pricing, fairer dealer policies, and better demand forecasting. Without strategic realignment, the financial health of one of the world’s most critical automotive markets may continue to deteriorate.

Source: Reuters

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Michelle

Economic

Forex

Factory activity in many Asian economies shrank in June as U.S. tariff uncertainty kept demand low, but signs of modest relief for manufacturers raise the stakes in trade talks with Washington amid the region's gloomy economic recovery prospects.

The underlying softness in private surveys released on Tuesday highlights the challenges facing policymakers as they try to navigate U.S. PresidentDonald Trump'smoves to shake up the global trade order withsweeping tariffs.

Japan's manufacturing activity expanded for the first time in 13 months, and South Korea's activity contracted at a milder pace, private surveys showed on Tuesday.

China's Caixin purchasing managers' index (PMI) also expanded in June due to an increase in new orders, confounding an official survey that showed activity shrinking for a third straight month.

However, stalled trade talks with the United States, prospects of weakening global demand and lacklustre growth in China will likely weigh on Asia's factory activity, analysts say.

"Overall, manufacturing supply and demand recovered in June," said Wang Zhe, economist at Caixin Insight Group on China's PMI.

"However, we must recognise that the external environment remains severe and complex, with increasing uncertainties. The issue of insufficient effective demand at home has yet to be fundamentally resolved," Zhe said.

The Caixin/S&P Global manufacturing PMI rose to 50.4 in June from 48.3 in May, surpassing analysts' expectations in a Reuters poll and the 50-mark that separates growth from contraction.

Japan's final au Jibun Bank PMI rose to 50.1 in June from 49.4 in May due to an upswing in output, but overall demand remained weak as new orders shrank on uncertainty over U.S. tariffs, a private sector survey showed.

Factory activity in South Korea contracted for the fifth straight month in June at 48.7, though the pace of decline eased due to companies' relief over a snap presidential election on June 3 that ended six months of uncertainty.

TRUMP TRADE SHOCK

"Volatility in U.S. tariff policy and economic recovery uncertainty are expected to persist in the second half," South Korean Industry and Trade Minister Ahn Duk-geun said, underscoring the urgency in Seoul to reach a trade deal with the United States.

The comments came after separate June data showed exports from Asia's fourth largest economy rebounded but shipments to the U.S. and China remained weak.

Steep tariffs imposed by Trump have upended global trade and heightened uncertainty for many Asian economies heavily reliant on exports to the U.S. market.

Negotiators from more than a dozen major U.S. trading partners are rushing to reach agreements with Trump's administration by a July 9 deadline to avoid import tariffs jumping to higher levels.

While China is continuing negotiations for a broader trade deal with the U.S., Japan and South Korea have so far failed to gain concessions on tariffs imposed on their mainstay export items like automobiles.

India was a significant outlier in the region, as manufacturing activity accelerated to a 14-month high in June, driven by a substantial rise in international sales that helped spark record-breaking hiring.

The PMI climbed to 58.4 in June from the previous month's 57.6 and in line with a preliminary estimate released last week.

Factory activity in many other countries in Asia shrank.

Indonesia's PMI fell to 46.9 in June from 47.4 in May, while that of Vietnam stood at 48.9 in June, down from 49.8 in the previous month, the private surveys showed.

Malaysia's PMI rose slightly to 49.3 last month, from 48.8 in May, while that of Taiwan dropped to 47.2 in June from 48.6 in the previous month, the surveys showed.

Shivaan Tandon, markets economist, at Capital Economics, said that given the broader weakness in manufacturing in the region, policymakers are likely to focus their attention on reviving growth.

"With worries about growth having taken precedence over those about inflation, we think most central banks in the region will continue to loosen monetary policy and by more than most analysts expect."

Source: TradingView

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Gerik

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Commodity

Gold Extends Gains as Fed Policy Expectations Shift

Gold prices continued their upward momentum on Tuesday, gaining 0.6% to reach $3,322.64 per ounce during midday trading in Asia. This follows a 0.9% increase on Monday, driven by renewed market conviction that the Federal Reserve will begin cutting interest rates later this year. Traders have increasingly priced in at least two rate cuts for 2025, shifting expectations amid signs of economic fragility and political tension in the U.S.

The link between interest rate expectations and gold is causally well established. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, enhancing its relative attractiveness. As expectations for Fed easing grow, so does demand for gold as a defensive asset.

Dollar Weakness Continues to Support Bullion Strength

A critical tailwind for gold has been the prolonged weakness in the U.S. dollar. The Bloomberg Dollar Spot Index slipped another 0.1% on Tuesday, following a 0.5% drop the previous day. The dollar has declined nearly 11% in the first half of 2025—its worst semiannual performance since the adoption of free-floating exchange rates in the early 1970s.

This sustained depreciation directly boosts the appeal of gold priced in dollars, especially for foreign investors. As Commonwealth Bank of Australia analyst Vivek Dhar notes, gold retains significant upside in the short term if the dollar continues to deteriorate.

Geopolitical and Trade Tensions Reinforce Safe-Haven Demand

The broader economic environment continues to reinforce investor preference for safe-haven assets. Gold’s 2025 rally—now exceeding 25% year-to-date—has been bolstered by rising geopolitical risks and trade uncertainty, particularly in light of President Trump’s aggressive fiscal agenda and the looming July 9 tariff deadline.

Concerns over how tariffs and spending measures might reshape the U.S. economic structure have added to the dollar’s decline and contributed to the flight toward traditional portfolio hedges like gold. In this case, the relationship is both causal and psychological: fears of policy instability push capital toward safe, liquid, and historically resilient assets.

Other Precious Metals Show Mixed Movements

While gold remains the centerpiece of investor attention, movements across other precious metals have been more varied. Platinum declined slightly after a historic 29% surge in June, its best monthly performance on record. That rally had been driven by acute supply tightness and robust demand from Chinese jewelry manufacturers and speculative buying from U.S. and Chinese traders.

Silver and palladium, meanwhile, continued to climb, reflecting broader optimism across the precious metals complex. These movements are influenced by both industrial demand cycles and investor sentiment, particularly as volatility in the currency markets reshapes asset allocation strategies globally.

Jobs Report May Serve as Next Major Catalyst

Looking ahead, the U.S. nonfarm payrolls report due Thursday is expected to serve as a key inflection point. A weaker-than-expected labor market print could further depress Treasury yields and elevate the case for near-term rate cuts, offering an additional boost to gold prices. This potential outcome reinforces the reflexive connection between soft economic data and increased demand for gold.

Gold’s recent rally is built on a convergence of falling real yields, a weakening U.S. dollar, and heightened geopolitical and trade-related risks. As long as the Federal Reserve appears poised to ease monetary policy and the U.S. dollar remains under pressure, gold is likely to maintain its strength. With bullion now trading less than $200 below April’s record high, the path forward will be shaped by incoming economic data and the trajectory of U.S. trade policy. If current trends hold, gold may soon test new highs.

Source: Bloomberg

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Glendon

Economic

Forex

A review of South Africa’s inflation target by the National Treasury and the nation’s central bank is close to completion, Governor Lesetja Kganyago said.

“It should be very soon that it’s finalized,” Kganyago said in an interview with Bloomberg Television on Tuesday on the sidelines of a European Central Bank forum in Sintra, Portugal. “Our teams have been working very hard, they are fine-tuning the final details and they’ll make their recommendations to the minister and the governor.”

The central bank’s inflation target, which was adopted in 2000 and hasn’t been reviewed since, is currently under review by teams from the SARB and Treasury. That technical work is nearly and they will present recommendations soon to Kganyago and Finance Minister Enoch Godongwana, the SARB said in its annual report on Monday.

“We have impressed on the team — there is an opportunity right now of using opportunistic inflation and that the sooner we finalise that the better,” Kganyago said.

Source: Bloomberg Europe

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Gerik

Economic

Forex

Taiwan Dollar Jumps Amid Market Test of Central Bank Tolerance

The Taiwan dollar posted a sharp rebound on Tuesday, surging as much as 2.5% to reach 29.16 per U.S. dollar. This marked the currency’s biggest single-day gain in nearly two months, recovering losses from a 2% decline just a day earlier. Year-to-date, the Taiwan dollar has appreciated roughly 12%, making it the strongest-performing currency in Asia so far in 2025.

The volatility stems from a mix of speculative positioning, exporter-driven dollar sales, and foreign capital inflows. Market participants interpret this as a direct test of the Central Bank of the Republic of China’s (CBC) tolerance for rapid currency appreciation, especially at a time when the U.S. dollar is broadly weakening.

Exporters and Fund Repatriation Fuel Buying Frenzy

According to traders, the rally was triggered by heavy dollar selling from local exporters during Tuesday’s morning session. These moves were reinforced by repatriation of funds from Taiwanese asset managers and robust foreign buying of local equities in June. While the drivers are partially speculative, the causal chain is clear: as the U.S. dollar weakens, Taiwanese firms accelerate dollar sales to lock in more favorable exchange rates, pushing the Taiwan dollar higher.

This appreciation, however, risks damaging the competitiveness of Taiwan’s export-heavy economy. The central bank responded by instructing state-owned banks to purchase U.S. dollars, aiming to stabilize the exchange rate and ensure liquidity in the FX market.

Central Bank Intervention Seeks to Preserve Stability

The central bank has historically taken a hands-on approach to currency management, especially during periods of heightened volatility. In recent weeks, authorities have urged domestic firms to avoid excessive currency speculation and asked foreign investors to unwind bets via exchange-traded funds. These actions reflect growing discomfort with the Taiwan dollar’s rally, particularly its impact on institutional portfolios.

The currency’s strength has already caused paper losses for life insurers, many of whom had scaled back foreign-exchange hedging on their U.S.-dollar-denominated investments. If appreciation continues unchecked, insurers face deeper valuation losses, highlighting a direct causal relationship between exchange rate volatility and balance sheet stress.

Traders Exploit Seasonal 'Window-Dressing' Moves

Some analysts believe the central bank's actions may be more symbolic than structural. Fiona Lim of Malayan Banking noted that recent interventions resemble "window-dressing" practices common in financial reporting seasons. These are intended to temporarily stabilize the Taiwan dollar ahead of half-year financial disclosures, particularly for exporters and insurers who benefit from a weaker local currency when converting foreign earnings.

However, as long as the global dollar remains under pressure, traders are likely to maintain their strategy of selling USD/TWD on rallies. According to Garfield Reynolds at Bloomberg, intervention efforts may create ideal speculative conditions, allowing market participants to buy the Taiwan dollar at artificially weak levels, expecting fundamentals to drive further gains later.

Currency to Remain Volatile Amid Trade and Policy Uncertainty

Analysts expect the Taiwan dollar to remain volatile in the near term, caught between two opposing forces: a broadly declining U.S. dollar and the central bank’s desire to maintain export competitiveness. Vishnu Varathan of Mizuho Bank remarked that the central bank is signaling to markets that the recent surge is not part of a structural policy shift, but rather a temporary recalibration.

Until there is clarity on U.S.-China trade negotiations—which have been largely stalled—and a clearer direction for global interest rates, Taiwan’s currency is likely to experience continued two-way swings.

The Taiwan dollar’s recent surge highlights the delicate balancing act facing the central bank: containing speculative inflows and currency strength without harming exporters or institutional investors. With the dollar weakening globally and markets eyeing Taiwan’s monetary strategy closely, the next few weeks may prove critical in shaping exchange rate dynamics across the region. If speculative momentum builds and official intervention remains cautious, the Taiwan dollar may challenge new highs—and test the central bank’s resolve further.

Source: Reuters

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James Whitman

Central Bank

Economic

The European Central Bank has fulfilled its inflation goal but volatility in foreign-exchange and commodities markets means the outlook for prices is murky, according to Governing Council member Gediminas Simkus.

The rapid strengthening of the euro against the dollar and moves in energy prices following tensions in the Middle East could cause inflation to deviate again from the 2% target, the Lithuanian central-bank chief said Monday in an interview. The risk of undershooting is greater than overshooting, he said.

“The inflation outlook remains fragile,” Simkus said on the sidelines of the ECB’s annual retreat in Sintra, Portugal. “We can’t be sure whether the assumptions behind our forecast will actually materialize this way.”

With inflation around 2%, ECB officials are confident they’ve met their objective. Their latest round of projections foresees price gains at the same level also in 2027, following a temporary dip below that threshold next year.

The outlook remains highly uncertain, however — partly because of geopolitical tensions and the confrontational trade policies of US President Donald Trump. Investor doubts about the dollar have also propelled the euro, which may depress import prices for the euro zone and make exports less competitive — both with disinflationary effects.

“The speed at which the euro is strengthening is something we have to monitor,” Simkus said. “In historic terms, the exchange rate isn’t out of the ordinary, but the pace of adjustment means we have to take it seriously.”

Simkus reiterated that with rates at a neutral level that neither stimulates nor restricts growth, a pause at the next meeting in July was the most likely scenario. That’s in line with the view economists who expect a final reduction only in September, after eight cuts since June 2024.

A big unknown is how the trade relationship between the European Union and the US evolves, with the two sides locked in negotiations before a July 9 deadline. Most products from Europe already face a 10% tariff on the other side of the Atlantic, however — something officials shouldn’t lose sight of despite signs of resilience, according to Simkus.

“Most of the tariff impact on the economy is undoubtedly still to come,” he said.

Source: Bloomberg

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James Whitman

Economic

U.S. President Donald Trump on Monday repeated his claim of a 68% increase in taxes if a sweeping tax and spending cut bill backed by him does not go through.

“The failure to pass means a whopping 68% Tax increase, the largest in history!!!” Trump said in a social media post, claiming that the bill would give the “largest tax cuts and border security ever.”

Trump has repeatedly cited the 68% tax hike figure in the past, but has provided little insight into the accuracy or the reasoning behind the figure.

Non-partisan website FactCheck.org said in a June analysis that the president may be referring to the percentage of Americans who will experience a tax hike if some of his 2017 spending cuts, which his bill seeks to extend, expire this year.

As for an actual tax increase, the Ubran-Brookings Tax Policy Center, a non-partisan think tank, estimates that Americans’ taxes will rise by about 7.5% if the 2017 tax cuts are not extended.

Trump’s comment comes as policymakers debate over his “big beautiful bill” act in the Senate, with criticism directed towards the potential for the bill to even further widen the government’s fiscal deficit.

Lawmakers embarked on a marathon session on Monday to pass the bill, but rifts still persisted within the Republican party over the bill’s effects on U.S. fiscal health.

While the Republicans hold a majority in the Senate, the bill has faced resistance from more fiscally conservative members of the party.

A non-partisan analysis showed this week that the bill, in its current form, will increase U.S. debt by $3.3 trillion.

Progress of the bill through Congress had rattled U.S. debt markets, especially as U.S. Treasuries grew less attractive to domestic and foreign investors. Concerns over the fiscal impact of the bill also saw Moody’s cut the U.S. credit rating in May.

The bill, which extends Trump’s 2017 tax cuts while also increasing spending on defense and border control, comes at a time when U.S. debt levels are at a record-high $36 trillion.

Former Trump confidant Elon Musk also criticized the bill for potentially increasing national debt. Musk on Monday vowed to unseat every Republican who backed the bill.