Summary

The core call on the renminbi: keep appreciation expectations alive, but it will probably not break through 7.0—“six is out of sight.” Feng Shu revisits the call he made at the start of the year, when every major investment bank predicted that the RMB would weaken past 7.4 by midyear, with the more aggressive forecasts calling for 8.0. Instead, it stayed between 7.26 and 7.1: “We got 60% of it right.” Looking ahead, a weaker dollar and rate cuts support appreciation, but “once appreciation expectations are fully—or even excessively—fulfilled, the money will accelerate out to complete the arbitrage.” Policy therefore wants the expectation, not the full realization—unless the Fed cuts rates sharply and much faster than expected.
Exports to the US now account for less than 10% of China’s total exports, down roughly 30% year on year in August, while total exports still grew 4%—the tariff-war leverage is “almost half what it was in 2019.” With high-tech products likely to exceed 20% of exports in 2025—products relatively insensitive to small exchange-rate moves—and local-currency swaps expanding to Europe and other regions after the SCO summit, China is reshaping its trade configuration on its own timetable rather than relying on depreciation to stay competitive.
Capital-account controls could gradually ease over the next 5–10 years, including the familiar $50,000 quota for individuals. New SAFE rules allowing foreign exchange to be used directly to buy commercial housing, permitting direct investment in non-corporate research institutions, and broadening the scope and scale of foreign-exchange acceptance by specialized technology companies are “a very small signal.” The deeper shift is that financial-investment inflows exceeded FDI in the first 8 months of the year: China is moving toward attracting global capital into services and capital markets. The prerequisite is “a relatively sustained or stable exchange rate and expectations of modest RMB appreciation.”
China’s economic restructuring is “halfway through”: high-tech secondary and tertiary industries together account for roughly 13% of GDP, and reaching 22–25% within 5 years would largely complete the transition. Real estate and its related supply chains have been cut from roughly 20% of GDP to just above 10%, with the gap being filled by high tech—turning horizontal expansion in scale into vertical growth in value. The targets set in these areas by the 15th Five-Year Plan are the most important lens for assessing China’s economy.
The liquidity undercurrent has not stopped: deposits are still moving, while several trillion yuan of 3-year time deposits are coming due. Household deposits fell RMB600B year on year in August while deposits at non-bank financial institutions rose RMB1.1T, almost a mirror image. The slowdown in the migration reflects the return to breakeven of funds bought at the 2021 peak, prompting some investors to redeem “to heal the wounds first,” as well as the 3-year deposits yielding around 3.x% that absorbed money after wealth-management products broke net asset value in early 2022. Those deposits are maturing in concentrated waves in the second half of this year, but new rates are only a little above 1%—how the money is redeployed is one of the year’s key financial questions.
The statistical timetable says that if a capital-market cycle lasts more than 10 months, a bull market begins transmitting to PPI after roughly 2 quarters and to retail sales after 2–3 quarters—if stabilization after the tariff shock in April and May is the starting point, September and October are the observation window. If the 15th Five-Year Plan, the final US-China tariff outcome, a possible leaders’ meeting, and 2 rate cuts between October and December all move in the same direction, “the liquidity-driven bull market will start to look more solid.” Policy could then shift from stabilizing expectations to opening the IPO channel for new-economy companies: “Do we want Cambricon to reach a RMB1T valuation, or would we rather see 10 Cambricons come to market?” Consumption, chemicals and midstream manufacturing would also need to catch up for a broad rally.
A key real-estate crossover has appeared: the rent-to-price yield in 50 cities has exceeded 2%, while the 10-year government-bond yield is around 1.8%—rental yields are now above the risk-free rate. Historical data suggest that real estate improves or moves in the same direction as the capital market 12–24 months after the latter turns better. Without more aggressive property measures, the optimistic case is stabilization in Q1 next year; the pessimistic case is year-end. This means “stopping the decline and stabilizing,” not a broad-based rally. Suppressed property demand accounts for several trillion yuan of excess savings, or nearly 3 times that amount when loans are included.
A large part of the gold rally is driven by global central-bank buying, reflecting a broad, long-term shift in confidence in the dollar and US Treasuries; stablecoins and related assets are a drop in the bucket—“the difference between 3T and 37T”—and only the low teens percentage of the 3T is liquid. One revealing micro signal: whenever retail sales recover on the back of a rising capital market, gold and jewelry are usually among the leaders. Beijing’s gold-and-jewelry retail sales rose more than 50% in August. This is not pure consumption; investment behavior is mixed in.

Deep dive

1. Opening rundown: rate cuts delivered, data miss, Madrid talks in the mix

Li Xiang opened with a rundown of recent developments: Charlie Kirk was assassinated, US-China representatives made progress in Madrid, TikTok’s sale produced an outcome, and “Trump himself even tweeted about it.” US employment growth slowed sharply in August, the unemployment rate reached a nearly 4-year high, and the Fed cut rates.
China’s data were “not as good-looking”: CPI continued to decline, although the National Bureau of Statistics stressed that core CPI was rising. The item that flooded people’s social feeds was the double-digit drop in Beijing’s August retail sales, leaving “a lot of people surprised.” Feng Shu suggested using these realized developments to revisit earlier calls. That is where “halfway through” comes from.

2. RMB review: banks called for 7.4 or even 8.0; the result was 7.26 to 7.1

At the start of the year, “economists at all the major and famous investment banks, across different types of institutions” agreed that the RMB would weaken past 7.4 by midyear. “When the forecasts became more aggressive, some said the RMB could reach 8 within the year.” That expectation persisted through March. Feng Shu’s self-assessment was unvarnished: “We got 60% of it right. You can’t really say we got 40% wrong; it’s more that we failed to consider 40% of the problem.”
What he got right was that, to preserve purchasing power and attract capital inflows, “the RMB cannot have persistent depreciation expectations.” A sharp depreciation was never likely. The currency ultimately traded between 7.26 and 7.1, and appreciated as dollar weakness materialized. That dollar weakness was the stagflation risk discussed in last year’s Macro Talk: anti-immigration policies leave low-wage service jobs short of workers, “setting off a spiral of rising inflation,” while tariffs add goods inflation.

3. Looking ahead: maintain appreciation expectations without delivering a large appreciation—“probably not above 7.0; six is out of sight”

From August, the market began pricing in a 6-handle RMB next year. Feng Shu pushed back. Global capital needs a reason to reallocate when the dollar, Treasuries and the US economy are all under pressure, and “this capital is enormous and highly profit-seeking.” If the RMB carries appreciation expectations and keeps delivering on them, money will rush in over a short period. “Once appreciation expectations are fully fulfilled, or even excessively fulfilled, the money will accelerate out to complete the arbitrage.”
The conclusion mirrors his call from the beginning of the year: “Just as I said then that it definitely wouldn’t weaken past 7.4, today I’d guess it probably won’t appreciate past 7.0.” The exception would be unexpectedly large and rapid Fed rate cuts over the next 6 months. The currency should remain in a narrow range above 7.
The 40% he missed was that, although the RMB was stable to slightly stronger against the dollar in the first half, it actually weakened slightly against the euro, pound and other major non-dollar currencies. Those currencies appreciated against the dollar faster than the RMB did. “I suspect there are many reasons here, and perhaps one is that we exercised some subjective control over the exchange rate.”

4. The new trade configuration: US share below 10%, tariff leverage “almost half gone”

China’s exports to the US fell roughly 30% year on year in August, and their share of total exports fell below 10%. Total exports still grew 4%, with the increase coming from ASEAN, Belt and Road markets, parts of Europe and Central Asia. In other words, the leverage available to the US through trade negotiations or tariff barriers is “almost half what it was in 2019.”
There is also a floor. As “the world’s largest producer and the world’s largest consumer,” it will be difficult for China’s exports to the US to fall another 50% or another 30%. The eventual range is probably 6–7% to 10%. Further declines would begin to hit high-value-added products that matter to the US as well. A listener raised rare earths last time: even after the temporary easing, their value share is very small and they are primarily raw materials, not high-value-added products.

5. High-tech exports above 20%: lower exchange-rate sensitivity, wider local-currency swaps

High-tech products accounted for roughly 18–19% of exports in 2024, and continued to grow year on year in the first half. The share will very likely exceed 20% in 2025. These products are not “labor-cost-sensitive or exchange-rate-sensitive.” A rising share helps anchor RMB appreciation expectations: China no longer needs depreciation to protect export competitiveness, while a stronger RMB boosts purchasing power abroad, which is precisely what the new trade configuration needs on the import side.
The third development is that, after the SCO summit and the military parade, China signed local-currency swap agreements with more countries and regions, including major agreements with Europe. The logic closes the loop: “If you keep the RMB stable and maintain some appreciation expectations, people will be more willing to conduct local-currency swaps and settlements with you.” That materially helps China build new international trade relationships through its own efforts.

6. SAFE’s new rules are a small signal: capital-account controls may ease over 5–10 years

The item that received the most superficial attention was “inbound foreign exchange can be used directly to buy commercial housing,” interpreted as a measure to encourage foreign buyers and support the property market. Feng Shu corrected that reading: the policy broadly expands the permitted uses of foreign exchange for investment in China. It also covers direct investment in non-corporate research institutions and widens the scope and scale of foreign exchange that specialized technology companies can accept. “It’s small but relatively important”—a signal of slightly looser foreign-exchange controls.
The bigger possibility is that, during the 15th Five-Year Plan or within 10 years, “the things ordinary people know today—the $50,000 quota, capital-account project controls—may all gradually be opened up.” Foreign capital will come only if medium-term RMB appreciation expectations provide an anchor: “Even if all other conditions stay the same, when you leave several years later, you can at least get some exchange-rate gains.”
He was unsure whether the initial draft of the 15th Five-Year Plan would explicitly point in this direction. “If it does, I think the signal becomes very positive.” The cost is that “arbitrage capital may come in more aggressively, simply to bet on appreciation.”

7. An overlooked structural shift: financial-investment inflows have overtaken FDI

State television reported it, but few text-based news reports highlighted it: in the first 8 months of the year, cumulative inflows and the share of non-FDI financial investment exceeded foreign direct investment—the land-leasing, factory-building and capacity-expansion portion. Feng Shu called this “a relatively profound change.” China is moving toward attracting foreign capital into services and financial investment rather than capital-expenditure-heavy physical construction.
Three conditions must hold simultaneously: the RMB must remain stable with expectations of modest appreciation—“if you do this while depreciating, domestic capital will instead run out”; the industrial structure must shift toward high-tech value-added industries, especially high-tech services; and China must “maintain a relatively sound and reasonable capital-market structure and level of attractiveness.” Excluding Hong Kong, the A-share market must also be able to attract global capital.

8. The halfway arithmetic: high tech from 13% to 22–25% of GDP means the transition is largely complete

The research framework used by colleagues in the secondary market puts high-tech manufacturing at nearly 6% of GDP and high-value-added high-tech services—information services, finance, consulting and so on—at roughly 7%, for a combined 13% across the secondary and tertiary sectors. High-tech agriculture such as drone seeding and genetic breeding is not included. Li Xiang guessed the figure could reach roughly 25% in 5 years. Feng Shu said, “That’s close to my 25% guess.”
Why is this the finish line? Real estate and its related supply chains once accounted for roughly 20% of GDP. “Cutting that in half is already a relatively aggressive cut,” leaving just above 10%. If high tech rises from 13% to 22–23% and fills the missing 10 percentage points, “the overall economic restructuring would basically have completed most of its work.” With GDP still growing, China can complete the transition from old industries to new ones, turning “horizontal” expansion in scale into “vertical” growth in value.
That is why the 15th Five-Year Plan matters. “It won’t write the things I just described directly into the document, because that would look as if it were trying to suppress real estate.” The key is the overall direction and target design for high-tech industries, and the stage of completion.

9. Li Xiang presses the point: employment and spillovers—how can the transition balance both?

The question is concrete. Real estate has a high share of GDP and household wealth, but it also supports extensive employment and has enormous spillover effects. “When real estate started to weaken, you quickly felt how broad its connections were.” Raising the high-tech share is fine, but “how do you address those 2 important issues at the same time?” The US’s social division and wealth gap may partly reflect the failure to balance them.
Feng Shu said it was an excellent question, and one he would face again when teaching at the Wudaokou EMBA program the next day. Many people intuitively put the eventual high-tech share of GDP at 30% or even 50%. His estimate is closer to 25%, precisely because “China cannot become like the US, where the service sector consists of everything from the lowest end to the highest end”—restaurants, entertainment, finance, software, AI and lawyers.

10. The Chinese answer: high-value-added industries “interlock” to preserve the full supply chain

The way to preserve the full industrial chain is to embed high-value-added sectors vertically into it. Chinese smartphone brands anchor precision manufacturing, while new-energy vehicles and intelligent driving anchor the transformed auto-parts industry. These sectors still absorb large numbers of workers with vocational-education backgrounds. “That is what happened in Germany.” This is also why the high-tech share will not reach 40%: the chain will necessarily retain horizontally expanding manufacturing links with heavy capital investment and modest gross margins, such as the long chain of semiconductor-equipment suppliers behind SMIC’s access to domestically produced DUV lithography machines.
More and more categories are being electrified and digitized: cars, wearables and smartphones, as well as smart fitness equipment and musical instruments in which Feng Shu has invested. Another company mentioned in the original subtitles has a highly complex supply chain, with Luxshare Precision among its equipment OEMs. Luxshare Precision “will not rely only on Apple in the future,” but on new-energy vehicles and hundreds or thousands of companies like it.

11. Digitized services are the container for new employment: Luckin, delivery riders and Douyin streamers

A question Feng Shu often asked listeners 18 months ago was whether Luckin was in retail or services. Most answered retail, but it is actually “services after digitization,” like ride-hailing, food delivery and express delivery. Luo Zhenyu said 4 or 5 years ago that new internet platforms have one defining feature: they create new employment. Douyin streamers—even e-commerce streamers—are “essentially a new type of service industry,” providing content, product announcements, demonstrations and even entertainment.
Unlike the half of US hotel, restaurant and entertainment employment that remains undigitized, digitization makes services more efficient. “A delivery rider can drop off 3, 4 or 5 orders along the same route.” Digital routing sets the optimal itinerary. Each order becomes cheaper for everyone, but the rider can deliver more orders per trip and the consumer’s per-order delivery cost falls. This is another form of employment for China as it opens up and develops its service economy.

12. Monopoly will be broken: the next players in food delivery, and ride-hailing as a test case

In large, fragmented industries covering food, housing, transportation, entertainment, finance and education, “there will not be a single-platform monopoly, because that would suppress industry development.” Meituan’s share once exceeded 65%, approaching what many considered a relative monopoly over the upstream and downstream. History has shown the same pattern in e-commerce and information distribution: Baidu held more than 70% in 2008, then Toutiao, Douyin and WeChat pushed it back. Feng Shu’s formulation is worth preserving in full: “When monopoly appears, at a certain point in time, to have become unbreakable and unbeatable, it will definitely be broken and defeated. This is almost a fixed economic law.”
Looking ahead—“I’m just guessing here; this is not investment advice”—once TikTok’s US situation is fully settled, Douyin will likely participate more aggressively in the broader food-and-lifestyle services battle. As Xiaohongshu lists and expands into e-commerce, it may join as well. Amap is already in the arena. “Will Baidu Maps come in too? We’ll see.” It is similar to 2015, when Alibaba’s e-commerce share exceeded 50% as Jack Ma prepared to step back, followed by a decade of competition among multiple players. That did not mean any one company’s growth collapsed; Alibaba’s GMV is still growing.
Li Xiang added ride-hailing as a case study. China has more small and mid-sized ride-hailing platforms than people realize, with fragmented and geographically specific supply. What they lacked was traffic. “What actually changed the situation was Amap.” Without aggregation services, Didi might have continued its crushing advance. Feng Shu said that once the full chain is digitized enough, “all traffic platforms can come in and participate in the traffic-distribution process.”

13. August financial data: deposits keep moving—breakeven redemptions and “my mother’s 3-year deposit”

The homework assigned last time came due. Household deposits increased in August but were RMB600B lower year on year. Deposits at non-bank financial institutions rose RMB1.1T, below July’s RMB2T increase but more than RMB500B higher year on year. Put together, the numbers suggest that “household deposits are beginning to shift toward wealth management and investment,” which appears to be the correct interpretation.
There are 2 explanations for why the migration appears to have slowed. First, some of the money that entered funds at the peak of the sales boom in late 2020 and 2021, after 3 years of losses, returned to net asset value 1 in July and August. “Some people may have finally broken even after 4 years and taken the money out.” Some may have switched into another direction; others may have decided to “heal the wounds first” and stop investing temporarily.
The second is a phenomenon Feng Shu verified with his own mother. After low-risk wealth-management products broke net asset value in late 2021 and early 2022, trillions of yuan were redeemed and moved into 3-year time deposits yielding around 3.x%, some with daily interest withdrawals. “My mother faced exactly this problem. Once it matured, there was nothing else to buy, because anything new now only yields a little above 1%.” These deposits are maturing in concentrated waves from midyear through year-end, with “several trillion yuan in between.” The money cannot all roll back into time deposits. “How this money is redeployed is another phenomenon worth watching.”

14. PPI and retail-sales transmission: 2 quarters, then 2–3 quarters

The decline in August PPI narrowed, attributed partly to the anti-involution campaign, which even included a special meeting with pig farmers. Core CPI rose 0.9% year on year. One telling detail: “If you look at Huijin’s holdings, they actually bought some chemicals in June—what we call midstream capacity.” When PPI is falling, midstream companies are squeezed from both ends and suffer the most. “We certainly don’t know why the national team bought, but we can see that it bought.”
The semi-qualitative conclusion from colleagues’ research is that if a capital-market cycle lasts more than 10 months or a year, PPI improves roughly 2 quarters after the bull market begins, while retail sales improve after 2–3 quarters. Feng Shu himself called the consumption transmission a surprise. “Consumption transmits a little more slowly, but not by that much.”
The starting point matters. If stabilization after the tariff shock in April and May is the starting point, 2 quarters lands squarely in September and October. “If you ask me, I may be somewhat optimistic. The August data show that things have already improved a little. If the trend is not interrupted,” the move will probably happen in September and October.

15. September–October catalyst resonance: aligned developments make the liquidity-driven bull market “more solid”

The event sequence previewed in earlier episodes is unfolding: the SCO summit and military parade have happened, and the rate cut was delivered yesterday. The biggest factors ahead are the 15th Five-Year Plan and the final outcome of US-China tariff negotiations. Supporting factors include a leaders’ meeting, the possibility of Trump visiting China with his wife, signs of early positioning around the 20th Central Committee’s 4th Plenum ahead of the 21st Party Congress in 2027, and whether 2 more rate cuts arrive between October and December as expected.
The pace of rate cuts remains uncertain. He offered 2022 as a mirror image: after a mild 25-basis-point hike in March, the Fed delivered 200 basis points of extremely unexpected hikes across May, June and July—50, 75 and 75—taking rates from 0.25 directly to 2.25. The reverse, an unexpectedly rapid easing cycle, is also possible.
The optimistic scenario is that the 15th Five-Year Plan builds confidence, tariffs land in a friendly range “like the online rumors suggest” and the fentanyl tariffs are removed, leaders meet, Trump visits China, and rate cuts continue. “If all these things happen in the same direction,” PPI and retail sales could improve ahead of schedule. “The liquidity-driven bull market would start to look more solid, because both manufacturing and consumption would be improving at the same time,” alongside foreign inflows, deposit migration and the activation of maturing time deposits.

16. Capital-market policy speculation: one RMB1T Cambricon, or 10 Cambricons?

Cambricon’s RMB600B valuation has several effects: a role-model effect, a wealth effect and a demonstration effect, encouraging companies outside chips to consider extending into the chip supply chain through M&A. The deeper point is that Cambricon only became profitable at scale in the first half. “You could argue that its earlier rise was purely a valuation expansion for a loss-making company.” The capital market’s valuation logic is becoming about more than earnings alone, which is critical for new-economy companies under the registration-based IPO system.
Feng Shu’s signature question is: “From a national capital-market perspective, does it want Cambricon to reach RMB1T, or would it rather see 10 Cambricons come to market?” Li Xiang said the answer for the country is clearly the latter. Feng Shu’s policy scenario is that once the market stabilizes, expectations improve and liquidity factors become visibly more supportive, there are only 2 possible outcomes: either everyone’s valuation doubles while the stock of assets stays unchanged, or the capital market becomes better at financing new types of companies. Hong Kong was already the world’s No. 1 IPO market in the first half. “I suspect that from some point onward, it will start accelerating the IPOs of these new types of companies.”
The other half of the point is that semiconductors, innovative drugs in Hong Kong and banks—boosted by insurance capital entering the market—have already risen. Chemicals, industrial manufacturing and consumption have not, and theoretically need to catch up. “Only after a broad rally is complete can a better capital market become something that the economy as a whole starts to benefit from.” High-value-added manufacturing plus services still account for only one-sixth or one-seventh of GDP. Their ability to lift the whole economy “should be a little, but it won’t be easy.”

17. Real estate: rent-to-price yields cross government-bond yields; stabilization comes next year

The key crossover is between 2 numbers: the rent-to-price yield in China’s top 50 cities reached and exceeded 2% in the first half, while 5-year and 10-year government-bond yields were around 1.8%. “The income generated by a home’s rent exceeds the risk-free rate.” Once risk appetite improves even slightly, capital will begin exploring assets that yield more than the risk-free rate. Risks from falling prices, vacancy and renovation still require compensation, so “crossing above it is only a key milestone.”
The statistics are harder to interpret because real estate policy has shifted repeatedly over the past 25 years and “was not a marketized process from beginning to end.” The broad, non-quantitative conclusion is that 12–24 months after the capital market improves, real estate will improve or move in the same direction. Starting from April this year, the optimistic case is stabilization in Q1 next year; the pessimistic case is year-end. “Improvement” does not mean a broad-based rally, and no one should buy homes as an investment on this basis. It means the persistent month-on-month and year-on-year declines stop and stabilize. Real estate will not again become the economy’s main lever or a primary investment category.
Li Xiang’s objection remains on the record: after the 2008 US stock-market crash, real estate took 7 or 8 years to return to growth, and Japan took even longer. Feng Shu’s distinction is that those were “lagging markets” punctured by financial crises. In China, “we deliberately punctured the bubble” in August 2021, even while the stock market was still performing well, and defused the risk early. The transmission logic is therefore different.
An accompanying estimate of excess savings: since 2022, the fall in property prices has suppressed household investment by “several trillion yuan,” in Feng Shu’s estimate. Including loans, the figure should be multiplied by roughly 2.x, close to 3. As risk appetite recovers, the release of this demand—not all of it will enter the stock market—will spread through the economy and complete the stabilization process.

18. Gold, Venezuela and 2 old books: the world order through a purely American lens

A large part of gold’s rise is because “central banks everywhere outside the US are buying.” Supply has not changed much, but a new group of buyers with extremely strong purchasing power has appeared. The deeper meaning is that central-bank accumulation of gold reflects “a consistent, broad change in long-term confidence in dollar and Treasury assets.” Stablecoins and related assets are a drop in the bucket: “the difference between 3T and 37T,” with only the low teens percentage of the 3T liquid. The micro signal is that whenever retail sales recover on the back of a bull market, gold and jewelry usually lead. Beijing’s gold-and-jewelry retail sales rose more than 50% in August. “It cannot be treated as pure consumption; some investment behavior is mixed in.”
Another reading of US-Venezuela tensions is that drugs are the stated reason, but the countries targeted by Trump—Russia, Iran and Venezuela—are all among the world’s biggest oil and gas producers, with Venezuela ranking first. The US is already the largest trader in natural resources. “There are economic reasons for targeting these countries with the largest mineral holdings.” The endgame of the Russia-Ukraine war is similarly driven by interests: “They really have stripped Europe, and especially Ukraine, of everything they can.” Mineral agreements, reconstruction, European purchases of US weapons and the shift in energy supply chains toward the US all fit the pattern. Once “everything that could be stripped has been stripped,” Washington has little reason not to push for a ceasefire and can even pursue a peace prize. Yet in the Israel-Palestine war, where tens of thousands of children have died and which, “setting aside religion, is also an old vendetta,” the US has chosen not to intervene.
Feng Shu revisited 2 books: Brzezinski’s The Grand Chessboard, written from the vantage point of an all-powerful US in the 1990s—“you immediately understand how enormous the difference is between the US today and the US in the late 1990s”—and Kissinger’s 2014 World Order. The latter lays out a 3-part account of the Westphalian system and how regions interpret non-interference in sovereignty through their own religious, historical and cultural traditions. Li Xiang added that emerging countries insist on sovereignty and non-interference, while the US and Europe developed new ideas after the Cold War to support intervention. “That conflict is embedded in the system.” Feng Shu’s standing warning remains: “It is 100% an American perspective. From even a Chinese perspective, it would not be entirely the same.”

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