Huachuang Securities Zhang Yu: RMB to Enter Gradual Appreciation Phase, Stocks More Cost-Effective Than Bonds, China's Oil Price Risk Limited

Recently, Huachuang Securities’ Chief Economist Zhang Yu shared her views on the global macroeconomy, China’s economy, and major asset classes at an event.

She believes that several slow-moving variables in the economy over the past few years are rapidly changing. The new economy now exceeds the old economy in proportion. Financial assets have already caught up with real estate assets in scale, and consumption and overall economic volume will gradually become less sensitive to real estate.

Regarding the highly watched oil prices and inflation, Zhang Yu offers two judgments: First, China’s risk of rising oil prices is not as high as other oil-dependent countries; second, the risk of global stagflation is greater than in China. It’s quite difficult for China to experience stagflation because the core issue is that inflation is hard to push particularly high.

She believes that China’s midstream manufacturing will enter a favorable global strategic phase over the next 2-3 years. In terms of investment significance, this is comparable to real estate 20 years ago, consumer white spirits 10 years ago, and gold 3 years ago.

She also thinks that both the real economy and capital markets will produce some outstanding companies.

Key insights:

1. Under the current macro pattern, stocks are more cost-effective than bonds, and stock downside volatility may be lower than bond downside volatility, so allocation still favors stocks.

2. Over the past two years, the two most important strategic assets globally have been non-ferrous metals and the tech industry chain represented by artificial intelligence. In the future, China’s manufacturing will become the third such strategic asset.

3. Promoting anti-involution and a unified large market domestically essentially involves supply concentration. As global trade demand disperses and supply concentrates, China aims to reclaim producer surplus globally.

4. The market often says China’s export surplus is large and near its limit, with strong resistance to further expansion. But this is based on a static view of the past 30 years. Using our “broad export share” metric, China still has potential.

5. Outbound midstream manufacturing will gradually give Chinese stocks a global income concept. Even if domestic demand and real estate have not fully bottomed out or recovered, some listed midstream manufacturing companies may see profits bottoming and margins improving.

6. Midstream manufacturing’s significance for investment is comparable to real estate 20 years ago, consumer white spirits 10 years ago, and gold 3 years ago.

7. In the next three to four years, we may earn substantial returns from intermediate goods—this is an era opportunity.

8. The RMB may enter a medium- to long-term gradual appreciation trend. Even if the willingness to hold foreign currency remains unchanged, earning 100 and converting 40, then earning 200 and converting 80, the rising demand for RMB will push it into a long-term appreciation trend.

(Adopting first-person perspective, some content has been condensed.)

Slow Variables Are Becoming “Fast”

Today’s discussion is divided into several parts.

First, China’s macro economy has many “slow variables,” but over the past three to four years (during the 14th Five-Year Plan), these slow variables have shifted from “turtle” to “rabbit,” causing structural changes in aggregate data. In the short term of two or three years, these slow variables were less relevant, but now they must be considered.

Second, due to structural transformation, the correlation between total data and traditional industries may decline. We broke down the total structure into upstream, midstream, and downstream segments to analyze “demand-driven momentum,” finding that China typically experiences a demand shift roughly every 5-8 years, and we are currently in the midstream manufacturing phase.

Third, we discuss why midstream manufacturing is currently favorable, why it can remain so for the next two to three years, and why it has strategic importance.

Fourth, within this framework, we analyze how oil prices influence CPI and PPI, and the probability of stagflation. We give two judgments: First, China’s risk of oil price increases is lower than other oil-dependent countries; second, global stagflation risk is higher than in China. It’s quite difficult for China to experience stagflation because inflation is hard to push particularly high.

Fifth, we perform some long-term and ultimate scenario analyses to answer “soul-searching” questions in investment. If these questions are not clear, in the short cycle of three or four years, investors may hesitate to hold or value assets confidently.

The New Economy in China’s GDP Has Surpassed the Old Economy

What specific economic data have undergone dramatic changes in the past three to four years? What is their macro significance?

First, the share of the new economy versus the old economy in GDP measured by the production method has crossed over in the past three to four years, with the new economy slightly surpassing the old, and expected to see a “golden cross” by 2025.

This indicates that from 2021 to 2024, the old economy’s weight was dominant and a drag, with concerns about banking risks, employment pressures, real estate delivery, and local finances—mainly focusing on risk trends.

As the weights shift, opportunity trends emerge—such as computing power, electricity, new energy, and automobiles—since their weights have increased, giving them “total scale significance.” This is a profound change driven by weight adjustments.

Second, the structure of household assets has changed. Analyzing household balance sheets is complex, so here’s a simplified view: assuming other variables are constant, focusing on financial assets and urban residential market value.

Before 2022, urban residential market value was about 100-110 trillion yuan higher than household financial assets, remaining stable for years. After 2022, housing prices declined, and households bought about 10 trillion yuan less housing annually, while disposable income saved about 10 trillion yuan, leading to an annual accumulation of roughly 20 trillion yuan in financial assets. Over about five years, this caused the ratio to cross.

By 2025-2026, the absolute values of urban residential market value and household financial assets are very close, with the gap shrinking from around 100 trillion to only 10-30 trillion.

The rapid convergence indicates that during 2022-2024, the contraction trend caused by real estate on household assets has ceased. Moreover, with financial market development, financial assets can now partly hedge against real estate. We must accept this structural shift as part of economic development.

Consumption Will Begin to Decouple from Real Estate

Further, as the balance sheet shifts from “a single large variable declining” to “at least two variables with rises and falls,” the stock market may improve, investment markets become more active, and cycles better; housing prices may still decline somewhat.

This means that the impact of balance sheet shocks may lessen, and consumption should logically start to become less sensitive to real estate.

We observe some signs, but they are weak evidence, given limited samples post-pandemic and real estate transformation (especially since 2025), and the difficulty in fully controlling macro variables. But as marginal change indicators, they are meaningful.

Weak evidence one: some cities show signs of decoupling from real estate in consumption. Comparing second-hand housing prices and retail sales growth in 70 large and medium cities, 2016-2023, shows a positive correlation—higher housing prices, better retail sales; lower prices, worse retail sales. In 2023-2024, due to subsidies and city-specific policies, heterogeneity increased, correlation weakened or disappeared. Since 2025, a slight negative correlation appears: even as second-hand housing prices decline, some cities’ retail sales stabilize or improve, beginning to recover. This indicates “weak decoupling.”

Weak evidence two: clearer from retail sales structure. We divide retail sales into three parts: real estate-related (decor materials, etc.); subsidy-related (appliances, furniture, office supplies, communication devices, etc., affected by subsidies); and “mandatory consumption” (about 80%, not subsidized, weakly correlated with real estate). Retail sales data are heavily influenced by subsidy timing, causing fluctuations—some months look good, others worse, with year-end growth sometimes only 1-2%. After removing real estate and subsidies, the growth rate of “mandatory consumption” stabilized from late 2024, with significantly reduced volatility, returning to the “slow variable” pattern of 2016-2018, with monthly fluctuations often below 0.1-0.2 percentage points. The stability of mandatory retail sales is an important signal.

Based on these weak signals, we believe that once the demand structure “levels out,” consumption shows signs of decoupling. Not that consumption has fully recovered, but that in the context of falling second-hand housing prices, consumption no longer declines—an important step in breaking the price decline spiral. The first step is not a rebound, but “no longer falling.”

Consumption Structure Has Started to Change

Third, the consumption structure is also interesting. 2020-2022 was not a normal period for China’s consumption pattern. After 2014-2015, with per capita GDP around $5,000, China generally followed international patterns: per capita service consumption growth has consistently outpaced per capita goods consumption, roughly doubling over three-year averages. After pandemic control ended, service consumption rebounded in 2024-2025.

From this perspective, the reduction of subsidies for durable goods from 3,000 billion yuan last year to 2,500 billion yuan is not policy retreat but a move to reverse expectations and repair the cycle. Once short-term issues are alleviated, policies will return to long-term rationality and transformation, aligning with development laws.

Internationally, China’s per capita GDP is about $13,000-$14,000, but the share of services in GDP is only 18%; in the US, at similar levels, it’s about 35%—more than double; Japan and Korea are around 25-30%, also about 50% higher.

Significant gaps exist in transportation, communication, education, entertainment, and healthcare. Looking ahead to 2025, variables with near double-digit growth in service consumption include transportation, communication, and cultural entertainment, consistent with the transformation pattern.

As long as the economy is not in a severe pessimistic “crisis” requiring policy intervention, most policies will support the transformation. That’s why this year emphasizes service consumption, and future plans include a service industry conference.

Export Structure Has Changed Dramatically

Fourth, China’s export structure has undergone a complete transformation over the past three to four years.

Since joining WTO in 2001, the global perception was “a country of consumer goods.” After 2008-2009, global demand shrank, with long-term deflation and low growth. From 2009 to 2018/2019, the share of intermediate and consumer goods remained relatively stable, with little structural change.

Post-2018/2019, the US “clamped down,” prompting China to accelerate technological self-reliance and specialization in key intermediate products. Coupled with supply chain disruptions after COVID-19 and the rise of Chinese brands’ recognition, in three to four years, China’s intermediate goods exports approached 50%, while consumer goods accounted for less than 30%, with a roughly 20 percentage point gap. Maintaining this trend for another 1-2 years, the share of intermediate goods could surpass 50%, making China a “middle-product export powerhouse.”

This means that, for the same dollar surplus, previously about 30% was consumer goods and 40% intermediate; now, about 50% is intermediate and 20% consumer. The profit margins for intermediate goods are higher; the same dollar surplus might generate more profit—possibly 30% more.

Total volume analysis and profit relationships weaken each other; total scale remains important, but the structure’s divergence creates a sense of “up and down.” The upward trend brings gains and optimism; the downward trend causes pain and friction during transformation. Behind these divergences are clear macro stories and group differentiation, which require governance but do not mean the transformation should stop.

Therefore, the traditional “three engines” (retail sales, exports, fixed asset investment) are losing significance in total analysis because each component’s nature has changed. We developed a method: breaking down demand into upstream, midstream, and downstream segments. For example, total exports are divided into upstream raw material exports, midstream machinery and electrical exports, downstream labor-intensive consumer goods exports. Similarly, other demands are split into upstream, midstream, and downstream, allowing us to observe demand shifts over the past 20 years.

From 2005-2015, the best demand was in upstream raw materials (industrialization, urbanization, construction), directly linked to macro themes and market expansion. During that period, macro-driven “beta” was strong, and fund managers with macro expertise and familiarity with the real estate chain and commodities performed well.

From 2015/2016 to 2021, demand shifted to downstream consumption (related to per capita GDP over $5,000, the Lewis turning point in 2012, and rapid “two modernization” processes). Consumption funds and related sectors thrived.

Since 2024/2025, especially 2025, we observe a third shift: midstream manufacturing is doing better. We believe China may enter a phase in the next 2-3 years where “midstream demand is stronger.”

This means upstream investment in real estate remains around -10% and continues to deleverage; downstream consumption gradually returns to the core of 80% essential consumption supported by policies and subsidies; midstream is the strongest.

In this pattern, investment strategies are relatively established. Investors should assess their alpha capabilities and choose methods accordingly.

Downstream, as long as profits stop falling, valuations are reasonable, and dividend yields are high, it’s a good high-dividend asset.

For upstream opportunities, two main approaches: one is event-driven/policy gaming (adjustments may trigger policies); the other is recognizing bottoming out and reversal of difficulties. Both require high timing skill.

Midstream Manufacturing Becomes the Third Strategic Asset

We believe that the rise of midstream manufacturing will enter a strategic tailwind.

Over the past two years, the two most important strategic tailwind assets globally have been non-ferrous metals and the tech industry chain, especially US tech stocks and AI. We think in the next two to three years, China’s midstream manufacturing will join as the third tailwind asset, representing Chinese manufacturing.

The first logic is that, under the reconfiguration of the global order, “supply anxiety” leads to diversified and resonant demand. Countries are backing up in technology, defense, supply chains, energy, and critical minerals—investing in capacity and development. Can developed countries’ manufacturing value-added meet this? No.

In 2000, developed countries’ manufacturing value-added accounted for about 30% globally; over 25 years, it hollowed out to 14-15%. China’s share is over 30%. Starting in 2023-2024, this trend is reversing. To add manufacturing value, where do the factories, machine tools, and parts come from? Only China.

“Diverse demand” refers to multiple countries and multiple needs: the US focuses on tech, defense, supply chains; medium-power countries on defense and critical minerals; emerging countries on industrialization and urbanization, feeling the tightening of peace and rising risks.

The Strait of Hormuz risks remind countries to “control their own resources,” emphasizing demand in peaceful times and supply in turbulent times, leading to demand resonance and diversification.

Demand diversification causes two changes:

One is the rise in stockpiling of key minerals, increasing desired inventories. In the next 1-2 years, analyzing supply-demand balances for commodities may underestimate inventories outside the balance sheet, raising systemic risks.

Second is the huge demand for intermediate goods. Developed countries need to add manufacturing value, and only China has the front-end intermediate goods capacity. China’s structural transformation over the past three to four years positions it as a “middle-product powerhouse,” with matching roles and clear dividends.

Changes in Global Supply-Demand Structure

The second logic is that bargaining power stems from the game structure: those who are dispersed are weaker; those who are concentrated are stronger.

In the past, demand was concentrated, supply dispersed. Ten years ago, China’s exports to the US accounted for over 20%, Europe over 20%, Hong Kong re-exports over 20%, totaling about 60%, with high-end intermediate products mainly used by the US and others. Supply was dispersed among over 30 provinces and regions domestically, plus Southeast Asia, Japan, Europe, etc., making China’s bargaining power limited.

Now, demand is dispersed, supply is concentrated. China’s bargaining power is improving as an objective trend, not just by will. Many Chinese companies’ premiums may exceed expectations because it’s a “law” and a “trend.”

Evidence of demand dispersion: the US’s share of China’s exports has fallen below 15 percentage points; no single country exceeds 15%. Meanwhile, “new trade partners” like Africa, Latin America, Asia (excluding Japan, ASEAN), and Europe (excluding EU) have increased their share from about 10% twenty years ago, to 20% ten years ago, and over 30% in recent three years, still rising at about 0.6-1 percentage point annually, especially with demand from small Middle Eastern countries exploding.

On the supply side, domestic efforts to promote a unified large market and counter-involution are essentially supply concentration. When demand is concentrated and supply dispersed, producers have no surplus, and consumers capture the surplus. When demand is dispersed and supply is concentrated, China aims to “recapture producer surplus” globally. Therefore, anti-involution and market unification are rational.

Additionally, high oil prices objectively accelerate this process. Domestic energy standards upgrades will push out low-end capacity, benefiting leading firms; rising global oil prices will also make supply chains less agile and increase costs for less efficient tail-end capacity, speeding up their exit, benefiting midstream manufacturing leaders—i.e., China. China’s share and premium power objectively increase, driven by domestic supply concentration and external oil price hikes clearing tail-end capacity.

Thus, midstream manufacturing clearly benefits. Disruption can lead to even better performance, as it accelerates the clearing of tail-end capacity.

We believe that “price transmission” and premium rate increases for intermediate goods will undergo three “trials” from 2025 to 2026. Last year’s tariff shocks were mostly passable; the surge in copper, silver, and other non-ferrous metals maintained profit margins; this year’s oil price rise, if profit margins hold, means midstream manufacturing enters a strategic tailwind. Turbulence in the international landscape ironically clarifies our strategic advantage.

Is There Enough Space?

If macro space is limited, it’s hard to support more capital market opportunities. We believe the space is large.

The market often says China’s export surplus is large and near its limit, with strong resistance to further expansion. But this uses the static “share of single-country exports” over the past 30 years. In reality, a country’s manufacturing strength and supply chain management are not just about domestic exports but also about mobilizing broad global production capacity. We define “broad export share” as the sum of China’s exports within China plus its mobilizable “overseas capacity” (in the US, Japan, Singapore, Indonesia, etc.). This reflects overall export capacity.

In 2000, the US’s “mobilizable overall export share” was about 20-23%; China now has only 11-12%, leaving about twice the space. Even now, it’s a few percentage points smaller than the US, indicating room for growth.

Second, the ratio of outward direct investment (OFDI) to GDP: China’s is about 15%, the US about 30%, again a twofold difference.

Third, the outbound space is not fully utilized, meaning Chinese A-share companies’ overseas profits are also underdeveloped. Overseas income of the CSI 800 index is only about 20-30%, while major developed market indices’ overseas income accounts for 60-70%. Even if China can reach 40%, it’s still about twice the current level, enough to produce many great companies.

Additionally, value-added in the global supply chain is not yet at the ceiling: China’s forward participation rate is about 18%, US about 28-29%, leaving about a twofold space.

Brand value potential is even larger. Many key, complex technological intermediate products are dominated by the US, Japan, and Germany; China’s share is less than 1%. For this item alone, there is a potential increase of dozens of times.

A very interesting logic is that, in the past, we accepted the idea that “Chinese stocks depend on China’s economy; only when the economy is good do profits rise.” But when buying US Starbucks stocks, you don’t need to focus on US domestic demand because it’s “global income.” Chinese midstream manufacturing going abroad will gradually give Chinese stocks a global income concept, shifting from GDP-based to GNP-based, from domestic to global income. Even if domestic demand remains stable and real estate has not fully bottomed, some listed midstream manufacturing companies may see profits bottoming and margins rising, with prices increasing, driven by overseas markets.

Why “Now”?

Why emphasize this now? Because we see signs.

First, at the listed company level, midstream manufacturing companies’ overseas gross profit margins are now higher than domestic margins by 4-5 percentage points. Before 2020, overseas margins were generally lower than domestic; pre-pandemic, China’s growth and inflation were higher, and overseas deflation and low growth, combined with domestic brand premiums, made profits more domestically driven. So, the logic of Chinese stocks was mainly tied to domestic economic growth.

Now, overseas margins are higher, and overseas revenue accounts for 25-30% of total income, with high margins and fast growth. In one or two years, overseas income may become dominant or even over half, becoming the core issue. Future fluctuations of some Chinese manufacturing stocks may depend less on domestic demand and more on regional revenue from Asia-Pacific, Europe, Africa, Middle East, and West Asia, changing the paradigm.

Second, bargaining power and supply-demand balance. We need not only the “demand dispersal, supply concentration” game perspective but also whether supply-demand balance supports growth. Capacity utilization data are insufficient and low-frequency; we approximate with the “demand and investment growth rate difference” across upstream, midstream, and downstream. The midstream is best and has surpassed the peak during the 2020-2021 supply chain disruptions when global demand was high. The difference is that then, real estate and all segments were booming; now, upstream is still digesting, downstream consumption has just improved and is more about valuation recovery, unlikely to return to 2015-2017 valuation elasticity; midstream demand and supply are well balanced, with a significant uplift in the red line. This is why we started writing about it in November last year, published outlooks in December, and have continued to reinforce this trend for five or six months.

Therefore, we say that midstream manufacturing’s investment significance is comparable to real estate 20 years ago, consumer white spirits 10 years ago, and gold 3 years ago. In the next two to three years, it can be independent of whether Iran’s situation eases or whether the global economy is stagflationary or recovering, becoming the most certain independent prosperity.

In fact, global turbulence is more likely to be upward, which benefits midstream manufacturing; conversely, some consumer goods in peaceful times may be impacted by global stagflation. But midstream manufacturing is under the framework of politics, defense, and supply chain security, with independence from economic cycles.

In summary, on the demand side, global security concerns drive demand diversification, independent of economic conditions; on the supply side, domestic anti-involution and high external oil prices (even if Iran stabilizes later, as long as order reconfiguration and turbulence persist) will promote tail-end capacity clearing. China is expected to increase global market share and bargaining power simultaneously. This is the fundamental logic supporting optimism about midstream manufacturing, driven by macro trends beyond individual will, and an inevitable trend.

China’s Oil Price Risks Are Not as Great as Other Countries’

Regarding inflation, we give two judgments: First, China’s risk of rising oil prices is lower than other oil-dependent countries; second, global stagflation risk is higher than in China. It’s quite difficult for China to experience stagflation because inflation is hard to push particularly high.

China is currently at the bottom of the economic cycle, with signs of recovery only emerging in the second half of last year. This position differs from the top in 2021, when price shocks could easily lead to stagflation. Now, with policies promoting recovery, the space for further economic decline is limited, making stagflation less likely.

Assuming an “upward” scenario: gold prices rise, durable goods prices rise (subsidies maintained at previous levels), service prices rise, pig prices increase, and oil prices average $100 throughout the year and stay there. CPI would rise about 2.3-3%, PPI about 2.5-3%. Even then, this is acceptable inflation for China, with core inflation not exceeding 2%, CPI not exceeding 3%, and PPI probably not exceeding 5-6%.

Previously, prices were falling. Others experienced inflation; now, all are rising by a few points. They may find it harder to sustain inflation, while China remains relatively comfortable. Therefore, the probability of stagflation in China remains low.

Major Asset Classes Are Favorable for Stocks

This year, major assets will still be influenced by the Iran situation and global liquidity. If oil prices spike uncontrollably, it could halt US rate cuts or even trigger reverse hikes, leading to liquidity contraction and valuation pressure on global stocks, including US tech stocks. So, macro asset allocation remains uncertain.

This is why we have spent a long time emphasizing China’s manufacturing and midstream manufacturing. Regardless of external conditions, midstream manufacturing is a cycle-independent, carefully selected direction.

The macro scenarios are mainly two: a baseline of weak recovery, and a worst-case of relatively weak stagflation. Under this pattern, stocks are relatively superior and more cost-effective than bonds. We are neutral to cautious on bonds; during recovery, bonds may fall; during stagflation, they are likely to fluctuate. Stocks are better. The stock-bond yield spread we discussed in June last year remains around the 80-90th percentile historically, indicating high stock value. Moreover, stock downside volatility may be lower than bond downside volatility, so allocation still favors stocks.

A Few “Soul-Searching” Questions and Longer-Term Outlooks

Next, we explore some “soul-searching” questions.

First, under the reconfiguration of the global order, do the “common sense” formed over the past 30 years of peace still hold? Are they still robust? We believe many are no longer stable.

Therefore, we should not simply conclude based on the “past 20 years” review. Understanding the current order reconfiguration reveals that the past 20 years are an extremely special 20-year period within the last 100 years—an exceptional phase since the 1970s of neoliberalism, relative peace, and liberalization. We are bidding farewell to this phase. Using past logic to judge the present warrants skepticism.

Second, the dividends from midstream manufacturing are both an “opportunity that waits for no one” and a “risk that waits for no one.” In the next three to four years, overseas capacity expansion will allow midstream to earn big; but after three or five years, overseas capacity will be released.

If China cannot capitalize on this wave of dividends—earning enough and transforming profits into global supply chain position, branding, premium power, added value, and R&D—then when overseas capacity becomes abundant and supply is no longer scarce, bargaining power will decline. When supply disperses again and demand becomes scarce, demand will be more valuable. Developed countries’ supply chain backups often rely on fiscal deficits or squeezing other expenditures, affecting domestic demand cycles. When they release supply, the party with large demand will have the advantage.

Thus, China must “consume” the midstream manufacturing dividends now, laying a solid foundation for modernization by 2035, truly enhancing external bargaining power; by the 14th Five-Year Plan, with income reform, entering a stronger internal cycle—earning income, then spending, with a more solid domestic demand cycle. The pain of transformation during the 14th Five-Year Plan (affected by real estate) will give way to a comfortable phase of large manufacturing in the 15th Five-Year Plan; the 16th Five-Year Plan will be critical for turning dividends into branding, added value, and bargaining power.

Third, under turbulence and order reconfiguration, demand is diversified and dispersed, while we hold the advantage in supply. Should we still blindly maintain full or excessive competition? We believe not. Excessive competition transfers producer surplus to consumers. Instead, through anti-involution, find a balance between competition and monopoly—maintaining some dispersion and technological racing while securing producer benefits. In major industry sectors, policy can guide such evolution.

Fourth, each era’s major power’s political and social systems are usually aligned with the most advanced productive forces of that time to achieve maximum efficiency. If AI is the most advanced productivity in the next 10-20 years, what system best fits it?

AI differs from previous technological revolutions in that it has stronger wealth enclosure and capital monopoly features. During the housing boom, large labor forces were needed; during the PC era, engineers and assembly lines were essential; AI may require only a few high-value individuals, with unprecedented concentration. The human system compatible with this needs stronger fairness orientation and transfer payment mechanisms to address wealth and capital monopolies. We believe there are advantages here.

Long-term, “time is on our side,” and “advantage is ours.” The 2035 modernization path, compared to concerns of “Japanization” three or four years ago, now shows clearer, observable, and discussable routes—an encouraging sign.

Deeper Impact of Midstream Manufacturing

If midstream manufacturing plays an important role in the coming years, it will bring several profound effects.

First, the RMB may enter a medium- to long-term gradual appreciation trend. Even if foreign exchange holding willingness remains unchanged, earning 100 and converting 40, then earning 200 and converting 80, the rising demand for RMB will push it into a long-term appreciation trend.

Second, if the overseas income share of A-share listed companies increases significantly, research systems and work methods must upgrade. Focusing only on domestic is insufficient; deeper insights into the global economy and industry are needed. Otherwise, these stocks will be “hard to understand,” posing new challenges for research and work.

Third, as China shifts from GDP to GNP, wealth and corporate outbound investment will require stronger capabilities to protect overseas assets and enterprises. Without security and protection, overseas GNP is like a “big piece of meat” on the street—unstable.

Fourth, this will also promote RMB internationalization and the internationalization of financial institutions. The central financial work conference emphasizes building top-tier international securities firms and financial institutions. Going global, financial services must go global too. One key indicator of “world-class” status is strong overseas operations.

In this context, compared to the relatively static Belt and Road, future RMB internationalization, financial internationalization, and financial service exports will be more demand-driven, more dynamic, and more robust, including infrastructure and supporting services.

That’s what I wanted to share today: why we see midstream manufacturing as a key, how to understand its strategic tailwind in the next two to three years, why “now” is the time to be optimistic, and its longer-term impacts.

Risk warning and disclaimer

Market risks exist; investments should be cautious. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should evaluate whether the opinions, views, or conclusions herein are suitable for their circumstances. Investment based on this is at their own risk.