China Unleashes Sweeping Monetary Easing to Counter Trade War Strain and Domestic Slowdown

Economic

China–U.S. Trade War

Summary:

In response to mounting pressure from a deepening trade war and sluggish domestic demand, China’s central bank has unveiled an aggressive suite of monetary policy measures to inject liquidity, stabilize markets...

PBOC Announces Broad-Based Stimulus to Reinforce Growth

On May 6, 2025, the People’s Bank of China (PBOC) announced a decisive policy shift with a series of coordinated easing measures. At the center of the move is a 10 basis point reduction in the seven-day reverse repurchase rate, lowering it to 1.4%, which in turn brings down the nation’s benchmark loan prime rate. In parallel, the reserve requirement ratio (RRR) will be slashed by 50 basis points, releasing approximately 1 trillion yuan (about $138.6 billion) into the banking system to stimulate lending and improve market liquidity.

These actions come amid increasing economic uncertainty driven by the resurgence of trade tensions with the United States. President Donald Trump’s imposition of tariffs as high as 145% on Chinese goods—and Beijing’s retaliation with 125% tariffs—has pushed Chinese policymakers to adopt a more forceful monetary stance. The timing of these announcements, just ahead of a planned meeting in Switzerland between Chinese Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent, underscores China’s attempt to stabilize the domestic economy even as it re-engages diplomatically.

Targeted Measures to Support Real Estate, Tech, and Consumption

In addition to the headline rate cuts, PBOC introduced a range of sector-specific tools to revive weak spots in the economy. A 500-billion-yuan relending facility has been established to finance consumption and elderly care, while mortgage rates for first-time homebuyers under the state-run housing provident fund were cut by 25 basis points to 2.6%. These steps signal renewed attention to the struggling real estate sector, which has been a key drag on China’s economic momentum.

Auto financing companies will also benefit from a phased reduction in reserve requirements—from 5% to zero—freeing up capital and encouraging credit expansion. While these actions indicate targeted fiscal loosening, economists note a potential constraint: domestic credit demand remains muted. As Tianchen Xu of the Economist Intelligence Unit observes, borrowing behavior has shown limited responsiveness to past rate cuts, raising questions about the efficacy of purely monetary solutions.

Macroeconomic Backdrop: Stabilizing Currency and Market Sentiment

China’s offshore yuan, which had weakened to a historic low of 7.4287 against the U.S. dollar earlier this month, has stabilized near the 7.22 level following the policy announcement. Analysts interpret this stabilization as a key enabler of the rate cuts. According to Zhiwei Zhang of Pinpoint Asset Management, reduced depreciation pressure gives the PBOC greater latitude to ease without triggering capital outflows or further currency instability.

Still, observers point out that while monetary easing may shore up sentiment in the short term, fiscal policy remains conspicuously absent from the current mix. Analysts such as Lynn Song from ING suggest that Beijing may be reserving stronger fiscal interventions for scenarios where economic data reveals deeper structural weakness. His projections include an additional 20 basis points in interest rate cuts and another 50-basis-point reduction in the RRR before year-end, but likely only after the U.S. Federal Reserve resumes its own easing cycle.

Trade War Escalation Adds Pressure for Policy Coordination

The latest economic interventions come as trade tensions reach new highs. The confirmed Switzerland meeting between Vice Premier He Lifeng and Secretary Bessent will be the first formal dialogue between Beijing and Washington since Trump reignited tariff hostilities. With trade between the two nations severely impaired, these talks represent a potential inflection point—but confidence remains low due to the scale of the tariffs and the unpredictability of U.S. policy rhetoric.

China’s current monetary stance appears to serve two parallel purposes: cushioning domestic sectors from external shocks and creating a more favorable macroeconomic environment ahead of critical trade negotiations. However, the absence of synchronized fiscal support may reduce the long-term potency of these measures unless reinforced by broader economic stimulus strategies.

The policy announcements on May 6 mark a clear pivot from Beijing’s earlier, more restrained approach to stimulus. In contrast to the piecemeal responses earlier this year, the new measures reflect growing concern among top officials over deflationary signals, waning investor confidence, and the long-term implications of trade decoupling. While market reactions have been cautiously optimistic, the road to stabilization will depend heavily on sustained consumer activity, global demand resilience, and the outcomes of looming diplomatic encounters.

Source: CNBC

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Economic

Decades-Long Trade Reliance Disrupted by Tariff Surge

The trade relationship between Canada and the United States—once among the world’s most stable bilateral partnerships—is now undergoing fundamental change. Following President Donald Trump’s intensification of protectionist measures, Canadian manufacturers are actively reconsidering their commercial priorities. According to data released in early May 2025, global firms operating across sectors such as pharmaceuticals, automotive components, and specialized consumer goods are searching for alternatives to U.S. markets, citing instability and increased costs.

In the first quarter of 2025, a 25% tariff on steel and aluminum imports was followed by an equivalent tariff on automotive goods that did not comply with the revised North American free trade guidelines. Though these measures stopped short of full reciprocal tariffs, their uneven implementation and political volatility have forced Canadian businesses to question the long-term viability of their southern trade routes.

Realignment in Strategy Reflects Institutional Demand for Predictability

Canada has long relied on the U.S. for roughly 75% of its exports, and its manufacturing sector is deeply tied to cross-border supply chains. The Canadian government reports that 42% of manufacturing output is sold into the U.S. and 41% of the industry’s 1.7 million workers depend directly or indirectly on U.S. trade. Despite this deep interdependence, firms are increasingly acting to mitigate exposure. Several companies interviewed by Reuters have confirmed redirection of resources and strategic planning toward markets in Asia and beyond.

This reorientation is driven not merely by tariffs themselves, but by the erratic nature of trade policy emanating from Washington. Prime Minister Mark Carney, elected on a platform to defend Canada’s sovereignty and economic stability, has declared that the traditional U.S.-Canada relationship is over. While his administration remains open to new trade frameworks, trust in the reliability of U.S. policy has eroded significantly.

Emerging Trade Corridors Gain Traction

PNP Pharmaceuticals, a contract drug manufacturer based in British Columbia, has begun seeking new partnerships in Asia, reflecting a growing trend of diversification. Although it currently faces no direct tariffs, LabelPak Printing Inc., another B.C.-based company that distributes packaging sourced from Asia, is planning to reduce its U.S. exposure, which currently accounts for 15% of its sales.

These cases illustrate how firms are not waiting for retaliatory measures to act—they are proactively restructuring sales pipelines and client bases to insulate themselves from volatility. The move away from U.S. dependence is less a reaction to one policy than to the cumulative effect of uncertainty and unilateralism in recent trade governance.

Political Discourse Fuels Commercial Hesitation

Comments from the White House have further fueled business anxiety. Spokesman Kush Desai’s statement that tariffs “won’t be a problem when Canada becomes our cherished 51st state” was widely interpreted as a dismissive gesture toward Canada’s sovereignty and a troubling signal for serious economic diplomacy. Such rhetoric exacerbates investor concerns about the sustainability of cross-border relationships in a charged political environment.

Moreover, Trump's attempt to justify the tariffs on Canada by linking them to fentanyl trafficking—despite evidence showing Canadian sources account for less than 1% of seizures—has been met with skepticism. Trade lawyers and advisors argue that the policy lacks coherence and appears driven more by political theater than by measurable risk.

Outlook: Stability as the New Trade Premium

For now, Canadian companies are prioritizing stability over scale. Many have accepted the near-term costs of reconfiguration in exchange for longer-term risk mitigation. As one trade consultant put it, “Owners want stability, banks want stability, private equity wants stability.” In this environment, the perceived reliability of a trading partner is becoming as valuable as tariff rates or profit margins.

With manufacturing output and employment so heavily tied to external markets, Canada's export community is undergoing a significant recalibration. Whether the U.S. remains a central player or is gradually displaced by a multipolar trade strategy will depend on how policy evolves on both sides of the border in the coming months.

Source: Reuters

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Economic

U.S. Leadership in Question as Trade Partners Look Elsewhere

The global trade environment is undergoing significant restructuring as countries respond to the United States' increasingly erratic approach to economic diplomacy under President Donald Trump. Despite ongoing negotiations—such as upcoming trade talks between U.S. and Chinese officials in Switzerland—key economies are moving forward with new trade deals that notably exclude the U.S. This shift signals a broader trend toward trade diversification and reduced dependence on American demand, with nations choosing to hedge against U.S. unpredictability rather than wait for clarity.

Trump’s statement during his May 6 meeting with Canadian Prime Minister Mark Carney—“They want a piece of our market. We don’t want a piece of their market”—directly undermines assurances from his own administration that trade deals remain a strategic priority. Financial markets reacted negatively to this rhetoric, as all major U.S. indices closed lower on Tuesday. The inconsistency between the White House’s stated goals and the president’s messaging is becoming a source of concern not only for allies but also for investors.

New Bilateral Deals Signal a Bypassing of the U.S.

A clear example of this new trade reality is the bilateral agreement signed between the United Kingdom and India. This deal will gradually eliminate tariffs on the majority of goods over the next ten years, with India slashing import duties on whisky and cars while the U.K. will remove tariffs on more than 99% of imports. Notably, this agreement reflects a growing preference for stable, mutually beneficial arrangements that circumvent U.S. uncertainty.

Likewise, ASEAN members and China are scheduled to meet on May 19 to discuss updates to their own free trade framework. These developments suggest a reconfiguration of global trade alliances, with the Asia-Pacific region accelerating its internal economic integration even as Washington pivots inward.

China’s Economic Stimulus and Market Optimism

Meanwhile, China is reinforcing its domestic economy through monetary easing. On May 7, the People's Bank of China announced a 10 basis point cut in the seven-day reverse repurchase rate, reducing it to 1.4%, and lowered the reserve requirement ratio by 50 basis points. This move injects roughly $138.6 billion in liquidity into the banking system, signaling a proactive stance to support growth amid external pressures and shifting trade dynamics.

Asian markets responded positively to the news, with the Hang Seng Index in Hong Kong rising by as much as 2% before paring gains. China’s internal stability and expanding domestic consumption—particularly in travel and tourism—are becoming anchors of regional confidence at a time when U.S. reliability as a trading partner is under scrutiny.

Geopolitical Tensions Add Further Complexity

Adding to the geopolitical complexity, India announced military strikes against targets in Pakistan-administered Jammu and Kashmir. This move, a response to recent militant attacks, could inject additional volatility into regional diplomacy and investor sentiment. However, India’s concurrent engagement in strategic trade partnerships reflects its dual approach of asserting military strength while deepening economic cooperation elsewhere.

JPMorgan strategist Mislav Matejka recently warned that the U.S. may no longer serve as a financial safe haven in the event of a global downturn. Post-pandemic, U.S. markets had significantly outperformed peers, but the current blend of political inconsistency, trade friction, and fiscal uncertainty is beginning to erode investor confidence. These sentiments are amplified by the $800 billion cost impact on companies like AMD due to restrictions on AI chip exports to China, reinforcing fears of prolonged fragmentation in tech supply chains.

The combination of Trump’s confrontational trade stance, unilateral policymaking, and strategic incoherence is catalyzing a shift toward a more multipolar trade order. Countries are striking new deals, forging regional alliances, and investing in domestic economic resilience—developments that collectively reduce the centrality of U.S. markets in global trade. While Washington remains economically powerful, its diminishing diplomatic predictability is prompting a global recalibration that may have lasting implications.

Source: CNBC

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Catherine Richards

Economic

Central Bank

Investors will seek clues over the future of the Bank of England's (BOE) bond-selling programme at its monetary policy meeting on Thursday, amid speculation that recent market turmoil may encourage officials to cease it later this year.

Strategists at Bank of America Corp and BNP Paribas SA are bullish on long-maturity gilts in a bet that the BOE could stop the bond sales from October. That view is growing after the central bank's unusual decision to delay an auction of securities last month in the wake of global market turbulence.

The bond sales are part of BOE's efforts to unwind its vast stimulus since the financial crisis and the pandemic. While it may be too early for officials to give a firm steer on the future of this so-called active quantitative tightening, any commentary will be studied ahead of a decision expected in September.

“The Bank is keeping a close eye on market fragility and may be coming round to the idea that QT is having a more meaningful impact on the market,” said Bank of America strategists including Agne Stengeryte. They recommend buying 30-year gilts versus equivalent interest-rate swaps on the prospect of sales stopping.

The country's 30-year debt has been buffeted the most by political and economic turmoil in recent years, as demand from traditional investors such as pension funds wanes. That led the UK's Debt Management Office to announce a historic skew away from longer-maturity debt this year, a move that supported the market.

While the central bank has repeatedly said its QT programme has had minimal market impact, it temporarily halted the sale of long-dated bonds in April in “light of recent market volatility”. The BOE's chief economist Huw Pill said that reflected a “tactical approach”, adding that there is a question over whether QT may exacerbate rises in bond yields in times of market stress.

“We have seen both the BOE and the DMO adapting to the recent market volatility, showing transparency and flexibility as they take steps to shield the gilt market from unjustified international pressure,” said a BNP Paribas team including Katherine Yoon. They now expect the BOE to pause its active gilt sales this year, citing it as a reason for their positive stance on long-maturity gilts.

The BOE is not scheduled to share its quantitative-tightening plan for the year starting in October until the month beforehand, though officials have guided investors leading up to such decisions in the past.

Policymakers use a mix of actively selling bonds and stopping reinvestments upon maturity to reduce the BOE’s balance sheet. Last year, officials voted to reduce its Asset Purchase Facility portfolio by £100 billion (US$134 billion or RM566.48 billion) over 12 months. Active sales accounted for £13 billion of that, with redemptions making up the rest.

The BOE's decision later this year will follow the Federal Reserve slowing its QT programme. In March, the US central bank slashed its cap for how much in Treasuries it lets roll off its balance sheet every month to US$5 billion, from US$25 billion.

“The way gilts have been caught up in US Treasury volatility is bound to pose questions about active QT, especially beyond September,” said Citigroup Inc strategists including Jamie Searle. “Long-end gilts may find a little comfort if the BOE reaffirms that ongoing QT is subject to market conditions and targeted QE is still a backstop.”

Source: Theedgemarkets

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Economic

Global Debt Reaches Record Levels in Q1 2025

According to the latest report released by the Institute of International Finance (IIF) on May 6, global debt surged by approximately $7.5 trillion in the first quarter of 2025, pushing the total to a historic high of over $324 trillion. This sharp escalation underscores the persistent financial burden carried by governments, businesses, and households worldwide as they continue to navigate post-pandemic economic adjustments and geopolitical uncertainties.

The most significant contributors to this increase were China, France, and Germany. In contrast, countries such as Canada, the United Arab Emirates, and Turkey managed to slightly reduce their total debt. The report reflects a broader divergence in fiscal trajectories between economies that are heavily investing in stimulus and industrial support and those adopting more conservative debt management approaches.

Emerging Markets Show Accelerated Debt Accumulation

Debt levels among emerging markets rose by more than $3.5 trillion in the same quarter, reaching a new peak of $106 trillion. China alone accounted for over $2 trillion of this increase, driven by ongoing infrastructure spending and state-backed financial support. Even when excluding China, emerging markets such as Brazil, India, and Poland experienced substantial increases in debt when measured in U.S. dollar terms.

Interestingly, the report notes that a weaker U.S. dollar served as a partial buffer for emerging markets, making dollar-denominated debt less burdensome in local currency terms. However, this temporary relief does not negate the growing structural risks associated with debt service sustainability, especially in economies with volatile exchange rates or rising import costs.

U.S. Fiscal Policy and Trade Uncertainty Raise Additional Red Flags

The IIF also expressed concern about the mounting debt in the United States, particularly in light of its increasing financing needs. These are partially driven by the tax cuts implemented under President Donald Trump's administration. While these cuts were intended to stimulate investment, their impact on revenue has contributed to a widening fiscal deficit.

Moreover, the Trump administration’s reliance on tariffs to offset revenue losses has added a layer of unpredictability to international trade. This policy inconsistency has created hesitation among investors and businesses, slowing capital expenditures and potentially hampering growth in both the U.S. and its trade-dependent partners.

Policy Flexibility and Debt Management in a Fragile Environment

As trade tensions and geopolitical instability continue to cast uncertainty on the global economic outlook, the IIF emphasizes the need for more adaptable fiscal policies, particularly in countries closely tied to U.S. trade dynamics. The risk lies not only in the absolute level of debt but also in how governments respond to changing economic conditions and political pressures.

Without strategic debt management and clearer policy guidance, particularly from major economies, rising debt could exert downward pressure on sovereign bond yields, weaken investor confidence, and further strain global financial markets. This growing burden requires coordinated global oversight to prevent systemic imbalances and ensure sustainable growth.

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Economic

Commodity

Gold Price Surge Triggers Policy Adjustment Among Banks

Over recent months, the Chinese gold market has witnessed substantial volatility, with gold prices in both the London spot market and Shanghai climbing more than 20%. This price movement has prompted several commercial banks in China to raise the minimum required amount for customers to access gold accumulation services. This shift reflects not only market dynamics but also a growing institutional emphasis on risk screening and investment control.

The gold savings service allows individual investors to buy gold shares through bank-issued accounts, which can later be redeemed either for physical gold or converted into cash. With the minimum trade unit typically set at just 1 gram, the product has long been favored for its accessibility. However, the steep price rally has driven banks to reassess their entry requirements to ensure that participants possess sufficient financial resilience and awareness of investment risks.

Consumer Demand Meets Institutional Risk Management

The decision by banks to elevate investment thresholds aligns with broader efforts to manage client exposure to rapid price fluctuations. In the context of rising prices, there has been a noticeable uptick in both spontaneous and scheduled gold accumulation among retail investors. According to Wu Zewei, a special researcher at Suzhou Commercial Bank, the flexibility and ease of use—enabled by mobile applications and online platforms—have made gold saving plans a preferred choice for small-scale investors.

However, this popularity also brings challenges. The link between gold price increases and investor enthusiasm may not reflect sustainable patterns. Some individuals have reportedly gone so far as to use consumer loans to finance gold purchases, which, while technically feasible, can lead to contract breaches and negative credit implications if not used in accordance with loan terms.

Volatility and Investment Discipline in a Heated Market

While gold retains its reputation as a long-term store of value, its short-term fluctuations pose serious risks. Market experts warn against uninformed or emotionally driven investments, especially as gold faces potential technical corrections following sharp price surges. The current environment suggests that prudent investment behavior—such as setting clear goals, diversifying assets, and assessing market entry points—is crucial for safeguarding against potential losses.

Importantly, investors must be cautious not to over-concentrate their portfolios in gold, regardless of its hedging qualities. The relationship between rising prices and increasing minimum thresholds reflects an attempt by banks to ensure that only individuals with sufficient risk tolerance and long-term strategy participate in gold accumulation schemes.

The rising threshold for participation does not signify exclusivity but rather a calibrated response to protect both institutions and investors from impulsive financial decisions. By tightening access, banks aim to reinforce informed participation while avoiding the pitfalls of speculative excess. As the market remains subject to external shocks and macroeconomic shifts, the emphasis is shifting toward sustainable financial behavior rooted in understanding, planning, and adaptability.

Source: The Economic Times

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Economic

Vietnam’s Q1 Growth Surpasses Regional Expectations

Vietnam recorded a remarkable GDP growth of 6.93% in the first quarter of 2025, marking the strongest Q1 performance since the onset of the COVID-19 pandemic. According to data from the General Statistics Office, this figure exceeded the official growth target outlined in Resolution 01/NQ-CP and reinforced the country's trajectory as a regional economic powerhouse.

Despite ongoing global trade disruptions and geopolitical uncertainties, Vietnam’s growth was broad-based and driven by three main sectors. The services sector grew by 7.70%, contributing over 53% to overall economic expansion, supported by recovering domestic tourism, rising international arrivals, and strong momentum in tech-driven service industries. The industrial and construction sector rose by 7.42%, driven by renewed foreign direct investment in electronics and manufacturing. Meanwhile, the agriculture, forestry, and fisheries sector posted a steady 3.74% increase.

Indonesia Faces Its Slowest Q1 Growth in Three Years

In contrast, Indonesia—the largest economy in Southeast Asia—reported a GDP growth of 4.87% for Q1 2025, the slowest first-quarter expansion since 2021. This performance came in below the 5% threshold that the country has typically maintained in recent years. According to Indonesia’s Central Statistics Agency (BPS), the slowdown was partly due to the base effect of last year’s general election, which triggered a one-off spike in government spending in Q1 2024, thereby making current year comparisons weaker.

Private consumption in Indonesia contributed 2.61 percentage points to GDP growth, followed by fixed capital formation (0.65%), net exports (0.83%), and other components (0.86%). Notably, government spending shrank by 0.08%, reflecting fiscal adjustments in the post-election period. Although still outperforming Malaysia (4.4%) and Singapore (3.8%) in the same quarter, Indonesia’s growth trailed behind Vietnam’s pace, a point acknowledged by Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto.

Vietnam Emerges as ASEAN’s Growth Leader

Vietnam’s Q1 growth performance not only reaffirmed its post-pandemic recovery strength but also underscored its ability to navigate trade uncertainties and shifting global demand. The Ministry of Planning and Investment emphasized that while geopolitical risks and rising tariffs have affected Vietnam’s export-driven sectors, targeted fiscal stimulus and domestic consumption have continued to support economic momentum.

In its latest Asia Development Outlook, the Asian Development Bank projected Vietnam’s GDP to grow 6.6% in 2025 and 6.5% in 2026, following a robust 7.1% expansion in 2024. This outlook is fueled by sustained foreign investment, improvements in business environment reforms, and rising demand for Vietnamese goods and services in regional and global markets.

Indonesia: Challenges Ahead Despite Strong Fundamentals

Although Indonesia remains a critical player in ASEAN, its short-term growth outlook is clouded by fiscal tightening and export dependency. Rising commodity price volatility, uncertainty over U.S. tariffs, and slow recovery in global demand are posing challenges to its manufacturing and infrastructure sectors. However, officials are optimistic that economic performance will rebound in the latter half of the year as consumer confidence improves and public investment projects resume.

Despite the current divergence, both Vietnam and Indonesia are poised to benefit from broader shifts in global supply chains and regional trade integration. However, Vietnam’s ability to outpace expectations and secure one of the highest Q1 growth rates globally places it in a favorable position as ASEAN’s most dynamic economy in early 2025.

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