The RMB is the clearest bullish signal from this China research trip

Overview

This report is Deutsche Bank’s Asia macro foreign exchange strategy note, based on a three-day investor research trip to Beijing and Shanghai. Its core judgment is that China’s external and geopolitical environment is stabilizing faster, and technology plus the new economy are boosting market confidence, but the domestic economy still faces structural pressure, including weak consumer confidence, a prolonged property downturn, and a soft labor market. As a result, both bullish and bearish logic exist for China, while the RMB is the clearest bullish signal in the report.

Core views

The report presents nine main views: first, improved US-China relations bring stability, but the expiration of Section 301 tariffs could create disruption; second, China’s growth is K-shaped, with the new economy offsetting the drag from the old economy; third, consumer rebalancing is constrained by income and confidence, and AI may also intensify employment pressure in the services sector; fourth, the end of 41 consecutive months of negative PPI growth is a positive change, but demand-side policy support is needed for it to transmit into spending; fifth, foreign firms’ profit margins are under pressure but they are not actively leaving China, and are more likely to view China as a center for learning and innovation; sixth, property has entered a permanent institutional change, and policy is focused on risk control rather than reflation; seventh, China’s AI advantage lies mainly in applications and infrastructure rather than frontier models; eighth, capital account opening is clearly directional but extremely slow, with Hong Kong still serving as the connector between offshore and onshore RMB; ninth, corporate FX conversion is driving RMB appreciation, and the PBoC is more likely to manage the pace of appreciation than to stop the direction.

Analysis framework

The report uses on-the-ground research and thematic synthesis, drawing on discussions with policymakers, academics, market participants, think tanks, chambers of commerce, and technology industry practitioners to extract signals on China’s macroeconomy, foreign exchange, industry, and policy, and then map those signals into investment implications for the RMB, growth, consumption, property, and the capital account.

Methodology notes

• macro researchThree-day investor research framework

  multi-stakeholder interview synthesis

  Using feedback from policy, academic, market, corporate, and technology participants during the Beijing and Shanghai trip, the report assesses China’s external environment, domestic demand, and RMB trend.

• growth analysisK-shaped growth framework

  the new economy supporting the old economy

  The report classifies tradable goods, AI-related equipment, capital goods, and new energy as the strong new economy, while consumption, property, services, and domestic investment are grouped as the weaker old economy, arguing that the former is temporarily offsetting the latter’s drag.

• FX strategyCorporate FX conversion-driven framework

  exporters converting FX to drive CNY appreciation

  Chinese exporters will convert a larger share of trade surplus into RMB, and together with confidence in export competitiveness and domestic growth, this increases appreciation pressure on the RMB.

Asset mapping & comparison

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

• RMB/CNY

  core bullish asset

  Strengths

  Rising corporate FX conversion, improved confidence in export competitiveness, and volatility in USD assets together are creating appreciation pressure on the RMB, while the PBoC appears to accept the direction of appreciation and manage the pace.

  Weaknesses

  Weaker domestic growth and capital account controls still limit the speed of RMB internationalization.

  Comparison

  Compared with China’s domestic-demand assets, the RMB is the clearest and least disputed positive signal in the report.

  Risks

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

• China macro assets

  a differentiated allocation target

  Strengths

  The new economy, tradable goods, AI-related equipment, capital goods, and new energy are growing strongly, while improved external relations enhance stability.

  Weaknesses

  Consumption, property, services, domestic investment, and the labor market remain structurally weak.

  Comparison

  The new economy is stronger than the old economy, and external stability is improving faster than internal recovery.

  Risks

  Insufficient demand-side policy support, weak income growth, tariff risks, and property downturns may suppress overall asset performance.

• China property

  a structural drag

  Strengths

  Second-hand home prices and sales in first-tier cities are showing signs of stabilization, and the market believes a bottom is gradually visible.

  Weaknesses

  The government does not intend to make property the main growth engine again, and new starts and new-home sales remain sluggish.

  Comparison

  Compared with the new economy, property has shifted from a cyclical growth engine to a long-term risk-control issue.

  Risks

  More than 70% of developers and investors expect no stabilization before 2027, and wealth effects continue to weigh on consumption.

• Offshore RMB and the Hong Kong channel

  a gradual capital account opening vehicle

  Strengths

  Hong Kong continues to connect offshore and onshore RMB, providing international investors with RMB and China asset exposure.

  Weaknesses

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

  Comparison

  The offshore market provides a transitional mechanism, while onshore capital controls remain intact.

  Risks

  The 2015 capital outflow experience still limits policy opening speed, and cross-border flow and convertibility risks remain.

Key data

• Report Date2026-05-22The sidebar shows Date 22 May 2026.
• 2026 growth target4.5%-5%Respondents believe China is confident in meeting its official 2026 growth target.
• 1Q26 growth viewabout 5%The report believes growth of about 5% in 1Q26 may be the full-year high, after which it should moderate.
• Long-term growth pathabout 4%The report expects growth to gradually slow to about 4% over the next decade as China reaches high-income status.
• Household new depositsRMB 50-60 trillionHousehold deposits have accumulated significantly since 2021, but weak employment, wages, and property wealth losses are discouraging consumption.
• PPI statusturned positive after 41 consecutive months of negative growthThe report sees this as a positive change, but whether it can alter spending expectations still depends on demand-side policy support.
• AI-related equipment exportsclose to 100% YoYThe report cites this as one piece of evidence for strong new-economy growth.
• Property stabilization expectationmore than 70% of surveyed developers and investors believe it will not stabilize before 2027Policy focus in property is risk control, not restoring real estate as a main growth engine.
• Digital infrastructureabout 80% of transactions are completed through e-walletsThe report uses this to illustrate that China’s AI applications can be layered onto a highly digitalized economy.
• Year-end RMB forecastUSD/CNY 6.50-6.70Respondents unanimously believe CNY is on a clear appreciation path.

Impact & implications

In terms of investment implications, the report’s clearest direction is RMB appreciation. At the macro level, improved external relations and expansion in the new economy reduce the risk of a hard landing, but insufficient domestic demand recovery limits overall risk appetite. On the policy side, fiscal and quasi-fiscal tools remain the main growth levers, and policy rates are more likely to be cut only if growth is clearly below target. In asset allocation terms, the RMB and assets benefiting from exports, capital goods, AI applications, and the new energy chain are relatively supported, while property, traditional consumption, and services continue to face structural pressure.

Risks

• The July 24 expiration of Section 301 tariffs could cause the effective tariff rate on China to rise again.
• If export growth slows significantly, it will weaken corporate FX conversion and undermine the RMB appreciation thesis.
• Consumption is being suppressed by job worries, weak nominal wage growth, and property wealth losses, making a strong rebound unlikely in the short term.
• Property policy is centered on risk control rather than reflation, and new-home starts and sales remain sluggish.
• As AI slows hiring in traditional employment sectors, it may further replace service-sector jobs and intensify income pressure.
• If the PPI turn positive lacks government demand-side support, it may fail to translate into broader spending.
• The pace of capital account opening is extremely slow, so cross-border fund flows, convertibility, and settlement risks still require attention.

What to watch

• High-level meetings such as APEC and the G20 in 2026, as well as a potential visit by President Xi to the US in September.
• US policy choices after the Section 301 tariff expiration on July 24.
• Changes in China’s export growth and the proportion of corporate FX conversion.
• Whether USD/CNY moves toward the 6.50-6.70 range and how the PBoC manages the pace of appreciation.
• Whether nominal household wages, employment confidence, and consumption propensity improve.
• Whether the PPI turn positive can change the deflationary mindset of delayed purchases among companies and households.
• The extent to which policy banks’ lending and quasi-fiscal tools support infrastructure projects.
• Changes in second-hand home transactions, prices, and new-home starts and sales in first-tier cities.
• Marginal progress in Hong Kong’s offshore RMB market and capital account opening measures.