RMB is the clearest bullish signal from the China research trip

Overview

This report is based on a three-day investor research trip by Deutsche Bank in Beijing and Shanghai, with interviewees including policymakers, academics, market participants, think tanks, chambers of commerce, and technology-sector practitioners. The core conclusion is that China's geopolitical environment is stabilizing faster than its domestic economy. Improving U.S.-China relations, confidence lifted by AI, and a stronger RMB are the positive factors; however, structurally damaged consumption, the long-term retreat of real estate, and a weak labor market mean China's macro outlook has both clearly bullish and bearish aspects.

Core views

The clearest asset view in the report is a stronger RMB. Supported by greater confidence in China's export competitiveness, higher volatility in dollar assets, geopolitical concerns about offshore capital expenditures, and exporters converting a larger share of trade surpluses into RMB, CNY is seen as being on an appreciation path, with the year-end USD/CNY consensus range at 6.50–6.70. At the macro level, China's economy is showing a K-shaped recovery: new-economy segments such as AI-related equipment, capital goods, new energy, and tradable goods are growing strongly, offsetting the drag from old-economy consumption, real estate, services, and domestic investment. On the policy side, fiscal and quasi-fiscal measures remain the main growth levers, broad-based easing is unlikely, and a sizable policy rate cut may only appear if growth falls materially below target.

Analysis framework

The report combines field research with macro strategy judgment, distilling trends in China's macroeconomy, exchange rates, industry, and the capital account through interviews with policymakers, academics, market participants, and corporate practitioners. The focus is not a single data model, but cross-checking survey feedback against key macro indicators, including growth targets, exports, household deposits, PPI, real estate sales and starts, capital account arrangements, and corporate FX conversion behavior.

Methodology notes

• Macro researchInvestor field research

  Three-day research trip in Beijing and Shanghai

  By visiting policymakers, academics, market participants, think tanks, chambers of commerce, and technology practitioners, the team gathered first-hand feedback on China's macroeconomy, policy, and RMB trends.

• Macro structural analysisK-shaped recovery

  Strong new economy, weak old economy

  The report uses a K-shaped recovery to describe China's bifurcation: AI-related equipment, capital goods, and new energy are growing strongly, while consumption, real estate, services, and domestic investment remain weak.

• FX strategyCorporate FX conversion-driven exchange rate analysis

  Conversion of trade surpluses into RMB

  The RMB appreciation logic mainly comes from exporters converting a larger share of their dollar-denominated trade surpluses into RMB, together with capital reallocation driven by dollar-asset volatility and geopolitical factors.

• Policy analysisFiscal and quasi-fiscal stimulus framework

  Policy-bank loans supporting infrastructure equity capital

  The report argues that recent policy easing is more likely to be targeted than broad-based, and quasi-fiscal channels, especially policy-bank lending to infrastructure projects, are likely to be more influential.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CNY/RMB

  Core bullish asset

  Strengths

  Higher corporate FX conversion, improved confidence in export competitiveness, PBoC being relatively comfortable with an appreciating currency, and volatility in offshore dollar assets driving capital backflows.

  Weaknesses

  The domestic economy remains weak, and the pace of appreciation needs policy management.

  Comparison

  Compared with China domestic-demand assets, the RMB is viewed in the report as the clearest bullish signal from the research trip.

  Risks

  A significant slowdown in export growth would weaken corporate FX conversion flows and remove the main offset to weak domestic demand.

• China new-economy-related assets

  Structurally benefiting segment

  Strengths

  AI-related equipment, capital goods, new energy, and tradable goods are growing strongly, and AI applications and digital infrastructure are relatively advanced.

  Weaknesses

  Overall valuations and earnings may still be constrained by weak domestic demand.

  Comparison

  Clearly better than old-economy segments such as consumption, real estate, services, and domestic investment.

  Risks

  External tariffs, export slowdown, technology restrictions, or social pressure from AI-related job substitution.

• China consumer and services-related assets

  Cautious allocation segment

  Strengths

  If nominal income recovers and inflation expectations improve, household deposits could be released into consumption potential.

  Weaknesses

  Employment concerns, weak nominal wage growth, and damaged property wealth effects are structurally weighing on consumption.

  Comparison

  Weaker than export and new-economy chains.

  Risks

  AI substitution of service-sector jobs could further suppress household income and consumer confidence.

• China real estate-related assets

  Long-term under pressure

  Strengths

  Second-hand home prices and sales in first-tier cities show signs of stabilization, and the market is gradually accepting that a bottom may be visible.

  Weaknesses

  The government has no intention of making real estate the main growth engine again, and new-home starts and sales remain weak.

  Comparison

  Unlike past property stimulus cycles, the focus this time is risk control rather than re-accelerating growth.

  Risks

  More than 70% of developers and investors expect no stabilization before 2027, so the sector's recovery cycle may be very long.

• Offshore RMB and the Hong Kong linkage mechanism

  Capital account transition channel

  Strengths

  Hong Kong remains a key hub connecting offshore and onshore RMB and can support RMB internationalization experiments while capital controls remain in place.

  Weaknesses

  There is no clear goal or timetable for full capital account liberalization, and the pace of opening is very slow.

  Comparison

  A dual-track structure is more aligned with current policy preferences than full liberalization.

  Risks

  The 2015 capital outflow experience still limits policymakers' willingness to open rapidly.

Key data

• Research durationThree daysCovered Beijing and Shanghai and included policy, academic, market, think tank, chamber of commerce, and technology-sector participants.
• 1Q26 growthAbout 5%The report suggests 1Q26 may be the peak growth quarter for the year, after which growth will slow.
• 2026 growth target4.5–5%Respondents generally believe China can achieve this target.
• Long-term growth pathAbout 4%Over the next decade, as China enters the high-income stage, growth is expected to slow in a controlled way to around 4%.
• AI-related equipment exportsNearly 100% year on yearUsed to illustrate the support of the new economy for growth.
• New household depositsRMB 50–60tnAccumulated since 2021, but households are unwilling to spend because of income and employment concerns.
• Duration of negative PPI growth41 monthsPPI turning positive is seen as a positive change, but the pass-through to consumption and investment expectations has not yet materialized.
• Expectation for real estate stabilizationMore than 70% of developers and investors think it will not stabilize before 2027Real estate is viewed as a long-term structural transition, with policy focused on risk control rather than re-inflation.
• E-wallet transaction share80%The report uses this data to show that China's digital infrastructure is favorable to AI application deployment.
• Year-end USD/CNY forecast6.50–6.70Survey respondents have formed a strong consensus on RMB appreciation.
• Section 301 tariff key date2026-07-24If extended after expiry, the effective tariff burden on China could rise.

Impact & implications

For investors, the report implies that China-related assets cannot be judged with a simple bullish or bearish framework. External relations, export competitiveness, AI adoption, and RMB appreciation provide positive signals, but domestic demand, real estate, and employment constraints limit a broad recovery in risk appetite. In FX, the RMB is the clearest expression tool; in equities and credit, one should distinguish new economy from old economy, and export-linked chains from domestic-demand chains.

Risks

• After the July 24, 2026 expiry of Section 301 tariffs, if the United States extends the related regime, the effective tariff burden on China could rise again.
• A significant slowdown in export growth would weaken corporate FX conversion incentives and undermine the RMB appreciation logic.
• Insufficient household income and employment confidence could keep consumption from recovering for a long time.
• The real estate sector may remain in a prolonged state of low starts, weak sales, and poor confidence.
• While AI improves industry efficiency, it may also substitute for service-sector jobs, increasing income and consumption pressure.
• If PPI turning positive is not supported by demand-side policy, it may fail to translate into broad spending improvement.
• Slow progress in capital account opening limits RMB internationalization and the depth of foreign participation.

What to watch

• Whether USD/CNY moves closer to the 6.50–6.70 range.
• Exporters' FX conversion ratios and signs of offshore dollar assets flowing back from corporates.
• Progress on President Xi's potential visits to APEC, G20, and the United States in 2026.
• The United States' policy choice after Section 301 tariffs expire.
• Whether the PPI turn positive is transmitted into household and corporate spending expectations.
• Nominal wage growth, employment data, and household consumption confidence.
• Second-hand home prices, sales, and new-home start trends in first-tier cities.
• Policy-bank lending, infrastructure project capital funding, and the strength of quasi-fiscal support.