China's manufacturing sector has upper-hand in Sino-US trade disputes, says state-owned media

Our briefing on critical economic and financial developments in China as of Thursday, 15 May, 2025.

In this briefing:

• "US customers are more anxious than we are...our phones are exploding..." China's state-owned media is taking a decidedly triumphalist tone for the country's domestic audience in some of its reporting on the latest round of Sino-US trade negotiations.

• The Chinese central bank has unleashed 1 trillion yuan in long-term liquidity via a 0.5 percentage point cut to the required reserve ratio (RRR) for commercial banks. It's also removed the RRR completely for auto-finance and financial leasing companies, in a bid to boost domestic demand. Leading Chinese economists say the move is intended to increase financial support for the real economy, and embodies how Beijing coordinates fiscal and monetary policy.

• The Communist Party hopes to expedite the development of China's private economy with a new law that seeks to enshrine the legal rights of private enterprise. Chinese policymakers appear keenly aware of the indispensable role of the private economy in China's development, given that it "contributes over 50% of tax revenues, 60% of national GDP, 70% of technological innovation, 80% of urban employment, and accounts for over 90% of enterprises." In order to improve the financing of private enterprise, Beijng wants banks to cut them greater slack when it comes to non-performing loans.

• Beijing wants to make greater use of market-driven government investment funds to ensure the security of China’s industrial supply chains, according to Yang Zhiyong (杨志勇), Dean of the Chinese Academy of Fiscal Sciences. Yang views the funds as a perfect example of how the state and market work hand-in-hand in China to advances the goals of national strategies.

State-owned media says Chinese manufacturers have the upper hand in the Sino-US trade dispute

The trade stoush between China and the US made solid progress earlier this week, following negotiations between the two nations' lead representatives in Geneva, Switzerland

In joint-statement released on 12 May, China and the US announced that the two nations would cancel the 91% in additional tariffs introduced since Liberation Day, and temporarily implement reciprocal tariffs of 24% for a 90-day period.

A report from the National Business Daily (每日经济新闻), said the move has led to a sharp rebound in orders from US-based clients.

"In the past two days, Sino-US trade interactions have rapidly reheated," said the report (“美国客户比我们还急”！中美关税调整，中国厂家“电话被打爆”，有人一晚接了上百万元美国订单！).

"A foreign trade company in Shenzhen received six calls from US companies in just a day, saying the 'faster the better' when it comes to product delivery, while an international logistics company from Shanghai is receiving inquiry after inquiry from customers.

"Wang Li (王莉), the head of a furniture store in Shenzhen, reports receiving four orders worth USD$300,000 on 13 May alone - the day after the joint-statement.

"This is equal to nearly half the company's monthly order volume during regular business."

National Business Daily cites this as anecdotal proof that Chinese manufacturers have the upper-hand when it comes to the trade dispute.

"US customers are more anxious than we are...our phones are exploding," NBD reports one Chinese manufacturer saying.

"US end-dealers are now very excited - after all, the US is in a state of product under-supply."

China's central bank expects reserve ratio cut to unleash 1 trillion yuan in long-term funds

A 0.5 percentage point cut to the required reserve ratio (RRR) for China's commercial banks came into effect on Thursday, 15 May.

The Chinese central bank first unveiled the cut on 7 May, as part of a broader raft of monetary policy measures to support the economy a little over a month after Trump's Liberation Day tariffs.

Accompanying measures include a 0.1 percentage point cut to China's short-term policy rate, as well as a slew of adjustments to the central bank's structured monetary policy tools that guide credit to priority sector of the economy.

The latest RRR cut by China's central bank will bring the average RRR for commercial banks down to 6.2%.

The central bank hopes this will unleash one trillion yuan in long-term funds to support lending to China's real economy, as well as Beijing's ambitious fiscal spending plans for 2025.

"The 0.5 percentage point reduction will effectively satisfy the market's demand for long-term funds, said Dong Ximiao (董希淼), chief economic researcher at Merchants Union Consumer Finance (MUCF) to Shanghai Securities Journal ("降准今起实施，将向市场提供长期流动性约1万亿元").

"This will provide banks with greater 'ammunition' to expand credit support, as well as continue to reduce the financing costs for society."

Dong believes the RRR cut will also "squeeze out room for non-banks to engage in arbitrage and the empty circulation of funds,” by weakening their ability to vie for funds using higher deposit rates.

Ming Ming (明明), chief economist at CITIC Securities, said the RRR cut is a clear example of how China coordinates monetary policy with fiscal policy.

"May will see the issuance of ultra-long special treasuries, and the injection of funds into central financial institutions," Ming said.

"The RRR cut can unleash long-term liquidity to buffer the pressure of government debt supply, and optimise funding structures."

The central bank has also reduced the RRR requirement for auto finance and financial leasing companies from 5% to 0%.

Dong Ximiao said the move would "guide these two types of institutions to expand financial support for vehicle consumption and capital equipment upgrades, further spurring consumption and expanding domestic demand."

Communist Party hopes to boost growth of China's private economy with landmark legislation

On 30 April, a meeting of the Standing Committee of China's 14th National People's Congress passed the "People's Republic of China Law on Expediting the Private Economy" (中华人民共和国民营经济促进法).

The Law, which is scheduled to come into effect on 20 May, is "China's first foundational law tat is focused on the development of the private economy," writes Fu Yiyu (付一夫), senior researcher from the Xingtu Financial Research Institute ("付一夫：《民营经济促进法》意义深远")

Fu highlights widespread awareness within Chinese economic and policy circles of the pivotal role that private enterprise plays in China's development.

This is embodied by the phrase "56789" - a reference to the fact that the private economy contributes over 50% of tax revenues, 60% of national GDP, 70% of technological innovation, 80% of urban employment, and accounts for over 90% of enterprises.