DBS Group Research economist Samuel Tse assesses how recent US-China talks are shaping the outlook for Chinese growth and Chinese Yuan (CNY) rates. He highlights a more constructive bilateral tone, prospects for improved US market access, and potential easing of trade frictions. Stronger exports and sector-specific agreements are seen supporting China’s economy and putting mild upward pressure on long-end CGB yields.

Talks bolster Chinese growth expectations

"The US and China concluded the first day of talks with separate readouts. While the market is still awaiting a concrete trade agreement, the constructive tone from both sides suggests a gradual easing of trade tensions. Both countries are reported to be working toward a “Constructive Strategic Stability Relationship” and to be seeking to avoid a “Thucydides Trap.”"

"The US has also extended an invitation for President Xi to attend a state visit in September. These positive developments are reinforcing growth expectations, which in turn are placing modest upward pressure on long-end CGB yields relative to the short end."

"Markets are watching for potential easing in US tariffs, restrictions on advanced semiconductor exports, and China’s rare earth export controls. Any further progress in these areas would signal stronger Chinese growth momentum."

"China’s exports are already up 14.5% YoY year-to-date, with shipments to ASEAN and the EU rising by around 20%. If exports to the US were to recover from the current 10.9% year-to-date decline, this would add roughly 1.1% upside to total exports, given the US remains China’s third-largest export destination."

"Such a recovery could also generate positive spillovers into the labour market, further supporting the ongoing improvement in China’s domestic economic momentum."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)