Standard Chartered analysts Carol Liao and Moriarty Lam argue that China\u2019s reflation remains largely cost-driven, with industrial profit recovery concentrated in AI- and oil-related sectors. They highlight that domestic demand continues to lag supply, creating a persistent imbalance. They expect accommodative policies and a low-inflation, low-yield regime to stay in place as rebalancing takes time.<\/p>\n
Reflation led by AI and energy sectors<\/p>\n
“While we agree that productivity gains are driving China\u2019s supply capabilities, domestic demand has lagged, creating a persistent supply-demand imbalance.”<\/p>\n
“However, our analysis suggests that recent reflation has been driven primarily by higher global commodity prices.”<\/p>\n
“Industrial profit recovery has been concentrated in the AI- and oil-related sectors, while industries most frequently associated with \u2018overcapacity\u2019 have seen a limited improvement in profitability.”<\/p>\n
“The supply-demand imbalance may persist for longer if AI adoption runs ahead of labour market adjustment, placing sustained downward pressure on prices.”<\/p>\n
“In this environment, accommodative policies and a low-inflation, low-yield regime are likely to remain in place.”<\/p>\n