Hi YXI friends,

Trading Chinese stocks is not for the faint of heart. Stock valuations are heavily discounting policy risks, while the price action behaves like crypto. A “blue chip” name like JD can quickly double on the back of policy stimulus hopes in a month and lose 30% of its value in the next.

This week, China’s Politburo announced a change in the monetary stance from “Prudent” to “Moderately Loose”, for the first time since 2011. What does this really mean? Can we take advantage of this stance change in the coming year?

Let’s take a closer look. In this article, we will reexamine China’s monetary policy in 2008, China’s latest stimulus plans, the local government hidden debts, and the price technicals of China ETFs against the money supply

Table of Contents

• 1. The Last Time We Saw “Moderately Loose” Was Dur …

• 2. 2025 May See More Rate Cuts

• 3. The 10 Trillion RMB Plan

• 4. US-Listed Chinese Stocks vs. China’s M2

• 5. Overall: Cautiously Bullish

• 6. Afterword: Technical Analysis And Chinese ADRs

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. The Last Time We Saw “Moderately Loose” Was During GFC

In September 2008, the People’s Bank Of China (PBOC) first began monetary easing by cutting the Reserve Requirement Ratio (RRR) to release liquidity into the banking system.

Between September and December, the PBOC cut both the lending and deposit rates in each of the four months. The one-year benchmark lending rate dropped from 7.2% to 5.31%.

Notably, the Shanghai Stock Exchange (SSE) Composite Index (000001) rallied after the first rate cut September 16, dropped lower into October, and created a new low even after the second rate cut of October 9.

The SSE bottomed on October 27, starting a 10 month rally that saw the index double from 1670 to 3470 by August 2009. It should be noted that the market steadily declined after and did not make a new all time high until 2015.

2. 2025 May See More Rate Cuts

This time round, we have not yet seen the aggressive rate cuts we saw in 2008, as the PBOC has only reduced the 1-year loan prime rate from 3.45% to 3.1%. This was also before the change in monetary stance.

In the first half of 2025, we could potentially see more rate cuts from PBOC that brings the 1-year loan rate down to the 2.5% region.

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