Will Year of the Wood Snake Revive the Chinese Economy?

As the year of the Wood Snake slithers in, investors’ serpentine gaze is fixated on the Chinese economy. Will the red dragon’s economy shed its gloomy skin to reclaim its title as the world’s growth engine or stay constricted due to poor domestic demand? Examine the headwinds and tailwinds that may shape the Chinese markets in 2025 and refine your trading strategies accordingly.

The Year of the Wood Snake

The Chinese New Year begins on January 29, 2025, and ends on February 16, 2026. The sixth year in the lunar calendar is that of the Snake. In 2025, it has the element of Wood. Before we dive into what is on the cards for the Chinese economy, here’s what the Wood Snake symbolises in Chinese culture.

The snake represents inner transformation and clarity in decision-making. It also stands for adaptability and intentional actions. Traders, this one is truly for you. Wood is a symbol of growth, resilience and dynamism. It represents cultivating long-term expansion in all directions, similar to the branches of a tree.

These are effective lessons for building trading strategies and not just for the Year of the Wood Snake. Stay flexible to respond to market fluctuations, resilient in the face of uncertainty, and make informed decisions with proper due diligence. Most importantly, branch out, diversify your portfolio to hedge against market risks.

Gazing Into the Crystal Ball

Weak domestic demand and the property crisis were the most prominent headwinds for the China’s economic growth in 2024. Despite that, the World Bank raised its growth forecast for 2024 from 4.8% to 4.9% and from 4.1% to 4.5% for 2025. Let’s have a look at the tailwinds and potential headwinds for the world’s second-largest economy in the year to come:

Power Struggle Between the Snake and the Mongoose

The tariffs announced by the US were lower than the widely expected 60%. However, Trump 2.0 may push bilateral relations between the world’s two largest economies to a fresh low, given his America First stance. Donald Trump has promised hawkish policies to de-couple the US economy from China.

However, with the deepening bonding between Beijing and Moscow, and many more, China appears to be in better shape to weather the headwinds from tariffs than his previous tenure. The Red Dragon is already looking to export to other markets. The country’s goods and services trade grew 3% y-o-y in 2024 and closed the year with a surplus of $69 billion. By enforcing restrictions on rare earths, much needed for AI, EV and clean energy growth in the US, China may see a lower-than-expected impact of Trump’s policies. 

Shedding the Gloomy Skin with Policy Support

Financial sector reform is the top agenda of the Chinese government. It announced (RMB) ¥3 trillion in “patient capital” to boost economic growth. The country might also use reverse repo of government bonds to inject greater liquidity into the financial markets. Policy decisions failed to revive growth momentum in 2024. Yet, the Red Dragon is forecasted to further lower policy rates by up to 40 basis points. The lowering of interest rates till 2024 was seen as an attempt to prevent a significant slowdown. However, in 2025, these may be viewed as fuel to reflate the economy. The growth of the economy will depend on the success of the stimulus in reviving consumption.

Strong Equities

The Chinese markets have immense potential to surprise investors and offer a vibrant market to diversify outside of the US and EU. According to Goldman Sachs, the MSCI China/CSI300 is poised to rally between 15% and 20% in 2025.

Sectors, such as electronics, specifically home appliances, are forecasted to boost the growth of equities. Notably, the turnover in the Shanghai Stock Exchange and Shenzhen Stock Exchange remained above ¥1 trillion for over 55 trading days. During this time, the Shanghai Composite 

Index and the Shenzhen Component Index surged 23% and 31%, respectively. The tech-heavy ChiNext Index climbed a whopping 44% during that time.

Reviving the Property Market

The Chinese government is expected to provide a stimulus worth ¥8 trillion to clear construction backlog and restructure debt. Goldman Sachs expects the help to complete the presold inventory and improve investor confidence in the real estate market.

The People’s Bank of China has also instructed the nation’s banks to slash mortgage rates while planning to cushion the decline in bank revenues by lowering reserve requirements.

Currency Wars

China, along with the other BRICS nations, could use dollar devaluation as a weapon against the US. The Chinese offshore yuan, or the renminbi traded offshore from mainland China, hit a two-year low against the USD on December 31, 2024, and climbed to a 12-month high of 7.30 against the greenback on January 1, 2025. The USD/CNY is forecasted to end 2025 at around 7.55. The volatility will continue to provide traders with ample opportunities. Additionally, a boost to government spending will support the EUR and GBP, which means traders must make room for Chinese actions in their forex trading strategy. China is also Australia’s biggest trade partner. This means strength in the Chinese economy will support AUD appreciation and vice-versa.

Make sure you stay updated on the latest news and developments in the Chinese economy to make informed trading decisions.

To Sum Up

• The Year of the Wood Snake begins on January 29, 2025.
• China and the US could use tariffs as a weapon in a trade war in 2025.
• The Chinese government’s fiscal stimulus may accelerate economic growth in the country.
• Reviving the real estate sector is a key agenda for 2025.
• Economic developments in China may impact the EUR, GBP and AUD, apart from the CNY.

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