On Monday, the People’s Bank of China (PBOC) announced that it has left its 1-year loan prime rate at 3.00% and the 5-year rate at 3.50%, refusing to budge for the seventh meeting in a row.
The 1-year rate sets the tone for new loans, while the 5-year anchors mortgage pricing.
This comes as China’s economy shows more bruises, especially across retail, housing, and industry.
November’s data came in weaker than markets expected, as retail sales rose just 1.3% year-on-year, falling well short of the 2.8% growth economists had called. That’s also a drop from October’s 2.9%, which already wasn’t strong. Industrial production climbed 4.8%, missing the 5.0% projection. That’s the lowest growth since August 2024.
China’s housing crash deepens as property prices fall
Real estate is still a mess. Fixed asset investment, which includes infrastructure and property, dropped 2.6% between January and November compared to last year. That’s a sharper fall than the 2.3% economists expected.
The pain’s widespread. New home prices in Beijing, Guangzhou, and Shenzhen slipped 1.2% in November. Meanwhile, resale home prices plunged 5.8% from the year before. No part of the housing market is holding up.
At Cornell University, professor Eswar Prasad said that “some stimulus will help,” but warned that “monetary policy probably won’t get that much traction” with the private sector still fragile.
He added, “With growth momentum weakening, they’re going to have to turn on the stimulus taps, some monetary stimulus, perhaps, and ideally a little more fiscal stimulus, but that really needs to be packaged with some broader reforms.”
China’s finance ministry isn’t ignoring that. Earlier in December, they said they plan to issue ultra-long-term special government bonds in 2025 to support key infrastructure projects. Officials also promised to push forward actions to lift consumer spending, trying to stop deflation from setting in deeper. But even with that, investors aren’t getting excited.
Yuan stays soft despite temporary trade relief with Washington
The recent trade arrangement with Washington is giving China a short breather. Tariffs on Chinese exports have been suspended, which could support export growth in 2025. The country still hopes to hit its “around 5%” growth goal, but nothing is guaranteed. Domestic demand is still weak.
On the currency front, the yuan isn’t showing much strength. The onshore rate stayed flat at 7.04 per dollar on Monday. The offshore yuan weakened. Jason Schenker, president of Prestige Economics, said the yuan might push below 7.00 briefly over the next six months, but he doubts it’ll stay there.
“I’d be surprised if it was below seven for a sustained period. That would be viewed probably as a challenge and risk in China.” He now sees the yuan ending 2026 around 7.03, slightly firmer than his earlier 7.05 call from November.
Schenker’s not buying into the bullish outlook some banks are pushing. Goldman Sachs, for example, thinks the yuan could go as high as 6.85 in twelve months.
But that view clashes with recent calls from inside China, where some former central bank officials and economists are arguing for a stronger yuan. Their pitch? It could help rebalance the economy and reduce trade pressure.
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