Vol.171 Macro Talk 86 | Tariff War Disrupts Confidence Recovery, Government Steps Up Policy Support (Recorded May 21)
Summary
- The tariff war’s biggest damage is not current exports but the break it caused in business and household confidence, which had been recovering month by month from Q4 last year through January–March this year. All four household and corporate short- and long-term loan categories performed well in March, but the uncertainty after April 2 caused investment, consumption and home-buying to contract together; as 冯叔 put it, a recovery that could have “run together” now requires the government to push first, with the private sector following in a relay.
- A fall in household deposits in April does not mean households ran out of money; more likely, excess savings started moving elsewhere. Household deposits rose by RMB7.83T in the first four months, broadly consistent with a savings rate of around 40%; at the same time, deposits at non-bank financial institutions rose by more than RMB1T in a single month, suggesting that a meaningful share of funds moved into brokerages, funds, insurance, bonds or fixed-income wealth products—“the excess part is, broadly speaking, no longer excess.”
- Deposit migration into wealth products is the first step toward higher risk appetite, but it is not yet a consumer recovery. 冯叔 said one-year time-deposit rates appear close to 1% and could even fall below it, while April CPI was down 0.1% year on year; even cautious households will first pursue slightly higher returns, shifting pure deposits into low-risk wealth products before watching whether funds move into insurance, capital markets and eventually consumption.
- As the private sector retreats, the government has become a key source of both financing and demand. New aggregate social financing in April was only a little over RMB1T, with government financing accounting for more than 80%; local government bonds, special treasuries, “two major” projects and consumption policies were all front-loaded, while roughly RMB10T of debt swaps created additional room, leaving fiscal policy with “money, some room, and some incentive.”
- Real estate is nearing an economic threshold at which genuine-need buyers will have to run the numbers again, but the real switch remains income and home-price expectations. The first-home provident-fund mortgage rate has fallen to 2.6%, rent-to-price ratios in some cities need to return to around 2% or above, and deposit returns are already close to 1%; 冯叔 believes demand will turn “sooner or later” once these ratios converge, while 李翔 stresses that most households ultimately care more about whether home prices will keep falling.
- Moody’s downgrade of the US sovereign rating from AAA to Aa1 and the approach of 5% on 30-year Treasury yields look more like amplifiers of fiscal constraints than triggers for a near-term systemic collapse. 冯叔’s reasoning is that Treasuries are “too large, and there is no substitute for now”; the real pressure lies in the maturity wall, refinancing, deficits and the debt ceiling, with new issuance reinforcing the loop and potentially creating “a domino chain of vicious cycles” if expectations become unstable.
- 冯叔 sees the rebound in Hong Kong equity fundraising as a sign that long-duration capital may be slowly re-rating China allocations, but real fundraising must be separated from dual listings and “listing for listing’s sake.” The number of Hong Kong IPOs has increased, while the Hang Seng Tech and Hang Seng Healthcare sectors have continued to perform, pointing to greater market activity; but if a company valued at RMB8B raises only RMB300M, or less than 4%, listing does not guarantee sufficient liquidity, and institutional exits may remain difficult.
- The consumer story is not necessarily just “downgrading”; lower-tier cities are also seeing rational upgrading and the industrialization of dining. Average restaurant spending per person has fallen to around RMB40, which may reflect tighter budgets but may also result from prepared food, industrialized kitchens and chain-scale efficiencies; lower-tier markets are moving from “cheap is enough” toward “reasonable prices on top of acceptable quality,” with Mixue Bingcheng likened to the BYD or Wuling Hongguang of the tea-drink industry.
Deep dive
1. Household deposits and loans both fell in April, but the headline data mask a shift in where money sits
冯叔 first unpacked the data most prone to misinterpretation: household deposits and loans both fell in April. A decline in household loans can conventionally be read as weak consumption and home-buying intent, but a decline in deposits cannot be translated directly into “households have no money.”
The more important comparison is that deposits at brokerages, funds, insurers and other non-bank financial institutions rose by more than RMB1T in April. 冯叔 therefore inferred that “deposits have quite clearly started moving house,” although it is not yet possible to tell whether the funds went into equity funds, bond funds, fixed-income products or insurance.
This migration happened before the May 7 financial-policy conference and the subsequent cuts to deposit and lending rates. It was therefore not a one-off pulse after policy announcements, but an economic response already being driven by low deposit returns.
2. RMB7.83T of new deposits broadly fits China’s roughly 40% savings-rate baseline
冯叔 used a back-of-the-envelope check to assess “excess savings”: China’s GDP is about RMB134T, with the first four months accounting for roughly one-third of the year; household income represents just over 40% of GDP, and using a generous 50% assumption gives disposable income of a little over RMB20T. At a 40% savings rate, new savings should be around RMB8T.
Actual household deposit growth in the first four months was RMB7.83T, already close to that normal range. His conclusion was: “If you look only at the first four months, the excess part of this excess-savings story is basically no longer excess.”
China’s savings rate has long hovered around 40%; it approached 50% in 2020 amid massive uncertainty and was also around 50% in the mid-to-late 1990s. In 2024 it was already below the pandemic-period average. 冯叔 expects it may continue falling this year, though “it may still remain slightly above 40%.”
3. China’s savings rate far exceeds the global norm, and the root cause is not just consumption preferences
In cross-country comparisons, the US savings rate often sits in the low single digits at 3%–5%; Europe is generally in the teens to just above 20%, while developed Asian economies are broadly around 25% to just above 30%, with Japan also close to 30%. China remains clearly elevated even against Asia.
冯叔 considers the high savings rate alongside the income-distribution structure: Chinese household income accounts for just over 40% of GDP, while advanced economies dominated by high-value-added employment and services can reach 60% or more. That difference affects household spending power.
Uncertainty, home-price adjustments and the need to guard against retirement and other risks all raise savings. Stronger systems for education, healthcare, retirement and insurance would reduce precautionary savings. 冯叔 used the US as an example: the $1T–$2T of excess deposits created by direct payments in the early pandemic had largely been spent by mid-2022; after that, the US relied more on government subsidies for education, healthcare and other social-security areas to create jobs and support consumption.
4. Moving deposits into wealth products is not necessarily a closed loop; funds can re-enter fiscal spending through bonds
李翔’s question was direct: if a RMB100 deposit is merely switched into gold or another financial asset, without consumption or productive investment, “how much meaning does it really have?”
冯叔 used special treasuries to illustrate one possible indirect financing chain. Suppose households do not subscribe directly: financial institutions could first buy the bonds, then use them as the underlying assets of bond or fixed-income wealth products. Households buy those products with deposits, while the funds may return to the economic cycle through government investment, consumption subsidies or cultural and tourism subsidies.
He acknowledged that the efficiency of this route is debatable, but stressed that funds can plausibly make such a circuit. If the money is actually converted into gold and stored at home, the macroeconomic meaning is obviously different. But with total outstanding debt above RMB400T, the largest underlying assets in wealth products should still be various types of bonds.
5. The confidence climb through March was cut short by the tariff shock after April 2
From Q4 last year onward, consumption subsidies, signals of greater services-sector openness, the “924” policy briefing and shifts in market sentiment jointly supported an improvement in expectations. This year, DeepSeek, Ne Zha 2, robots, the private-enterprise symposium and the Two Sessions pushed expectations broadly higher month by month from January through March.
Household and corporate short- and long-term loans all grew well in March. Household short-term loans broadly track consumption, while medium- and long-term loans are mainly tied to home purchases; corporate short-term loans reflect cash flow, while medium- and long-term loans reflect investment and capacity expansion. Aggregate social financing and total lending also accelerated as confidence recovered.
冯叔’s view was that the tariff war beginning on April 2 may not have immediately reversed expectations, but it reintroduced uncertainty over the next 60 days, 90 days, half-year and year. It “cut in the middle” of the expectations and confidence that had already begun to recover.
6. The tariff war hit decision-making, not just individual data points
Corporate inventories, new orders and related PMI subindices fell in April and came in below expectations; all four household and corporate loan categories also declined sharply. 冯叔 compared this with certain periods in 2020: uncertainty first suppresses investment, capacity expansion, consumption and home purchases.
The deposit-to-loan ratio shows the behavioral shift more clearly. In Q1, households added about RMB9T of deposits and just over RMB1T of loans, roughly an 8:1 ratio. After including April’s net loan contraction, the first four months produced only several hundred billion RMB of new loans against about RMB8T of new deposits, lifting the ratio to around 15:1.
In 冯叔’s interpretation, the larger this ratio becomes, the weaker household demand for consumption and investment. Real-estate decisions can span more than a decade, making them especially sensitive to changes in expectations; April and possibly May could therefore suffer a more pronounced drag.
7. Monetary policy first activates deposits; consumption policy must rebuild momentum
The May 7 financial-policy conference covered rate cuts and reserve-requirement cuts, followed by cuts to both deposit and lending rates, with lending rates reduced by 10 basis points. The NDRC then called for all available consumption-stimulus measures to be deployed, with policies to be introduced by the end of June. 冯叔 sees these moves as a response to the confidence gap exposed in April.
Against April CPI of -0.1% year on year, 冯叔 said he had not been watching account balances particularly closely, but it appeared that one-year time-deposit rates were already near 1% and could even fall below it. Such a low risk-free return will push households first toward bonds, fixed-income products, funds or insurance offering somewhat higher potential returns.
His sequencing is cautious: rate cuts will not send money straight into consumption. Funds will first sit in products that balance return and precautionary needs. Whether they subsequently become long-duration insurance money or flow into primary and secondary markets will have to wait for follow-up data on insurers, public funds and bond-fund assets.
8. Government financing made up more than 80% of aggregate social financing, front-loading fiscal support
New aggregate social financing in April was only a little over RMB1T, of which more than 80% came from government financing. 冯叔 translated this as follows: while household consumption and corporate investment appetite were under pressure, “the government became somewhat more proactive.”
Special treasuries, local debt swaps and refinancing accelerated immediately after the Two Sessions, with issuance earlier and larger than in previous years. “Two major” projects were also required to complete relevant project approvals by the end of June, allowing policy implementation to begin sooner and influence expectations.
The contrast with last year is particularly stark. In the first seven or eight months of last year, local-government bond issuance was unusually delayed. Local governments may have been constrained by debt-ratio red lines and regulatory issues, while funds approved for projects remained undisbursed for long periods, leaving them “extremely strapped.” This year, approved quotas have moved rapidly into implementation.
Debt swaps worth roughly RMB10T in Q4 last year released some room by adjusting maturities, interest rates and other terms. 冯叔 therefore summarized this year’s government position as having “money, room, and incentive.”
9. The recovery shifted from public-private teamwork to government first, private sector next
李翔 used 顾朝明’s framework to summarize the situation: when households and companies lack confidence and have no desire to consume or invest, the government must become the “borrower of last resort,” borrowing proactively and shouldering investment and consumption.
冯叔 agreed, noting that April’s economic growth was mainly supported by exports and investment. Investment included “two major, two new” projects, consumption subsidies and cultural and tourism subsidies; the government was supporting short-term demand while also pushing longer-term projects.
With confidence recovering in March, government spending could have quickly elicited a corporate response and produced a recovery in which both sides “ran together.” After the tariff shock, the economy can only “run in stages”: the government pushes first, then policy, negotiation results or a new event must restore corporate and household expectations before the baton can be passed on.
10. 9.3% export growth did not erase corporate pessimism about next quarter
April exports grew 9.3%, a clearly stronger-than-expected result. But PMI indicators for new orders and expectations for future orders remained weak, creating a divergence between current performance and forward-looking judgment.
冯叔’s explanation is that companies may have resolved immediate orders through transshipment, order relocation or shifting exports to domestic sales, but still cannot confirm whether the pattern can be repeated next month or next quarter. Exports supported current aggregate growth but did not automatically restore corporate confidence in expanding capacity.
This is the tariff war’s “unexpected negative effect.” The first-round negotiation result was better than expected from China’s perspective, but the earlier volatility had already changed decision-makers’ assessment of the probability of repeated reversals. Policy must add further force to rebuild momentum.
11. Short-term sentiment can diverge from fundamentals, but economic forces still compel behavioral change
李翔 raised a pointed question: could the confidence rebound in March have been only a temporary burst of optimism caused by DeepSeek, Ne Zha 2 and similar events, while underlying conditions such as employment had not genuinely improved?
冯叔 did not deny sentiment’s short-term impact, but used the April deposit migration to show that sentiment alone is not enough: even as expectations weakened, households still shifted deposits into wealth products in search of higher returns. Economic forces can continue operating through subjective pessimism.
李翔 stressed that many buyers do not believe they have increased their risk appetite; under various cues, they simply view wealth products as low-risk products. 冯叔’s view is that once money moves from deposits into wealth products, objective risk appetite has risen, even if the individuals involved would not describe it that way.
The common conclusion is that individual experience and underlying trends often move in opposite directions. The job of macro analysis is to narrow the gap between “how I feel about the economy” and “what economic forces are actually driving.”
12. Mortgage rates and rental yields are converging; the dispute is over home-price expectations
The May 7 financial-policy conference mentioned that the first-home provident-fund mortgage rate had fallen to 2.6%. 冯叔 has repeatedly argued that rent-to-price ratios in some cities need to return to around 2% or above; as home-buying financing costs approach rental yields, genuine-need buyers will compare renting with buying again.
His specific scenario is this: deposits yield only about 1%, while renting the same home costs annual rent equivalent to 2% or more of its value, in addition to the costs of moving, restrictions on renovations and changes in family structure. If the rent-to-price ratio stabilizes at a reasonable level, buying becomes relatively more attractive.
李翔’s pushback is worth retaining: ordinary households may not calculate rent-to-price ratios at all. The real driver may be whether home prices will continue falling. An improved rent-to-price ratio may itself simply be the result of lower prices, rather than the cause of demand returning.
冯叔 maintains that individuals may use intuitive language such as “renting makes less sense than buying,” but the underlying driver is still the convergence of ratios. His condition is explicit: the speed of the shift depends on whether income, the economy and home-price expectations recover, but “the major economic forces that should emerge will emerge sooner or later.”
13. Hong Kong market activity is picking up; long-duration capital may slowly reallocate to China amid near-term risk
冯叔 observed that the number of companies listing and raising funds in Hong Kong has increased noticeably since the end of last year, while the Hang Seng Tech and Hang Seng Healthcare indices have also performed reasonably well. In his view, more funding supply alongside continued index performance at least indicates greater market activity.
The source of funds cannot be attributed solely to southbound capital. He suspects international long-duration money is also reassessing China–US asset allocation: tariffs raise China’s short-term recovery risk, but the first-round negotiation result may increase the probability that China achieves a better medium-term trend.
Higher-risk capital may first allocate to areas less exposed to tariffs or to higher-risk assets, betting that the tariff conflict will not develop into a large-scale confrontation. More conservative capital will slowly add exposure to less affected areas, increasing its allocation only after negotiation results persist and become clearer.
冯叔 summarizes the strategy as changing positioning and allocation first, then working out how to balance short-term risks. Long-duration capital is also disrupted by events, but it places greater weight than households on cross-market, cross-cycle probabilities.
14. A US Treasury downgrade raises costs but lacks a substitute asset capable of triggering a near-term collapse
李翔 brought the discussion back to the US: Moody’s downgraded the US sovereign rating from long-term AAA to Aa1, while the 30-year Treasury yield had approached or could break through 5%. After the rating news, equities, bonds and FX briefly suffered a “triple kill” in off-hours trading.
By Monday, citing analysis from financial and business media, 冯叔 said US equities were cushioned by retail buying, while Treasury prices lacked comparable support. He still rejected treating the downgrade directly as a crisis catalyst: “Treasuries are too large, and there is no substitute for now.”
Even if funds shift into gold, it would be difficult for central banks or trillion-dollar-scale capital to complete the substitution without materially pushing up prices. “There is no asset of comparable scale, size and category for you to buy,” which is the core source of Treasuries’ short-term resilience.
Regarding China’s previous rating downgrades, 冯叔 believes the impact on domestically issued government bonds was limited. Offshore borrowing costs may rise, but he acknowledged that he is not a bond trader and has not tracked the actual magnitude.
15. The real danger is a fiscal domino effect as maturities, deficits, and new issuance reinforce one another
The US faces a peak in debt maturities this year and must refinance while expanding the deficit and issuing new Treasuries. Around August, fiscal-deficit or debt-ceiling issues may resurface. Volatility in ratings and yields will make this entire operation more difficult.
冯叔 also placed the 90-day tariff-negotiation window, as well as the Trump administration’s proposal—still awaiting congressional approval—to impose a 5% tax on funds remitted from the US to anywhere in the world by non-US persons, within the framework of US fiscal and Treasury expectations.
His corporate analogy is a portfolio company that is simultaneously losing money, running negative cash flow and continuing to add bank debt. It must first stabilize at least one of the three: become profitable, turn cash flow positive or control the pace of bank borrowing. Otherwise, all three will deteriorate in a snowball effect.
李翔 added that living on borrowed money is generally unsustainable for a household after one or two years, can last longer for a company, and can continue much longer for a superpower like the US. Different scales do not eliminate debt constraints; they simply stretch out the crisis clock.
16. Hong Kong equity financing is stratifying while consumer spending industrializes, revealing two structural shifts
冯叔 divides Hong Kong issuance into several categories. The first is “listing for listing’s sake”: the company has a meaningful market value but raises very little. The second consists of companies at an industry inflection point where the sector itself has some momentum and the listing is genuine. The third covers mainland companies internationalizing, or Chinese companies listed in the US returning to Hong Kong in response to US capital-market policy changes; the latter can further be divided into overseas expansion and repatriation.
The simplest metric for identifying the first category is the amount raised as a share of market value. A company valued at RMB8B that raises only RMB300M, or less than 4%, may see little price movement after listing but still struggle to find buyers. CATL’s Hong Kong relisting, which according to 冯叔 raised several tens of billions of RMB on its own, should not be evaluated by the same standard as a first-category company.
The issuance ratios for the second category are usually more reasonable, at least in the high single digits, and subscription multiples should also be decent. Both the second and third categories may generate subsequent trading activity, while the first category may have limited liquidity and turnover.
Consumer spending is also stratifying. 冯叔 believes lower-tier cities are experiencing “rational consumption upgrading”: consumers are not simply looking for the cheapest option, but for reasonable prices on top of acceptable quality, along the lines represented by Costco, Sam’s Club and Pangdonglai.
Average restaurant spending per person has fallen to around RMB40, and consumption downgrading is only one explanation. Prepared food, industrialized kitchens, chain expansion and the convergence of dining occasions are also lowering average prices. Mixue Bingcheng is likened to the BYD or Wuling Hongguang of the tea-drink industry: star brands change every year or two, but the broader shift still points to scaling and chain-based industrialization.