From 2016 to 2026,
US federal gross debt grew from ~$19 trillion to ~$38 trillion.
US total market cap grew from $25 trillion to ~$75 trillion.
Debt doubled and market cap tripled.
That is probably higher valuation but also can mean better structure of the economy, better competitiveness, better margins.
A rough decomposition of the gap might be:
In April, CPI hit 3.8% annually and 0.6% MoM. Excluding food and energy, the core CPI increased 2.8% and 0.4%.
The 3.8% annual figure is the highest since May 2023.
However, as shelter is a big part of CPI, and Oct 2025 data is missing, there is a one-off bump here (0.6% MoM).
Oil price is obviously rising a lot, in March/April/May.
but that has eased in Jun
Other interesting items like tomatoes.. which rose 15% MoM in April, is impacted by bad weather and US gov July 2025 17.09% antidumping duty on Mexico tomatoes.
Investors rediscovered China mostly after the policy shift in Sep 2024.
However the ADRs and overseas listed companies still sold off in the subsequent month and the “924” effect nearly reversed.
The second wave of enthusiasm came with the famous “DeepSeek moment” in Feb 2025.
However, the entire world including Chinese ADR and overseas listed companies sold off with Trump’s liberation day in Apr 2025.
The current cycle is the third one and it plays out longer.
While the previous two cycles are fundament driven (policy and tech), the third cycle is a liquidity one I believe.
The most obvious sign is the near zero HIBOR (HK over night interest rate), starting in May 2026.
Meanwhile, there are various short-form videos, social media posts and anecdotes about mainland Chinese people go to HK to open bank accounts and brokerage accounts.
The troubling sign emerged probably when IBKR rejected mainland Chinese to open accounts in Oct 2025.
The Chinese ADRs and overseas listed companies peaked about that time with subsequent AI bubble worries etc.
As the stocks had risen for quite a few months and are at quite elevated levels, it also took time for it to come down.
Iran war accelerated this.
And the Futu/Tiger/LongBridge news in May 2026 marks the end of the cycle.
While it can take some time for remaining selldown to happen, it seems still manageable and valuation is not demanding.
PE multiple is not only a reflection of earnings quality, earnings growth/cagr, etc.
It’s also an encouragement or discouragement for value creation.
If $1 of profit is worth 10x in HK and 50x in A-share, companies could be more encouraged to create more value for A-share shareholders.
The same rationale also applies to upstream or downstream players – PE multiple can influence whether revenue or profit should sit more or less in supplier or customer etc.
For the first quarter of 2026, the net increase in mid-to-long-term household rmb debt is lower than 2015 by ~33%. This is an approx of net new mortgages.
2015 was the year of 棚改货币化 / 去库存
2016 was the year of 房住不炒 (near end of the year)
3月末，本外币贷款余额284.51万亿元，同比增长5.7%。月末人民币贷款余额280.51万亿元，同比增长5.7%。一季度人民币贷款增加8.6万亿元。分部门看，住户贷款增加2967亿元，其中，短期贷款减少1640亿元，中长期贷款增加4607亿元；企（事）业单位贷款增加8.6万亿元，其中，短期贷款增加4.13万亿元，中长期贷款增加5.42万亿元，票据融资减少1.1万亿元；非银行业金融机构贷款减少3680亿元。
3月末，本外币贷款余额91.52万亿元，同比增长13.3%。月末人民币贷款余额85.91万亿元，同比增长14.0%，增速比上月末低0.3个百分点，比去年末高0.3个百分点。一季度人民币贷款增加3.68万亿元，同比多增6018亿元。分部门看，住户贷款增加8892亿元，其中，短期贷款增加2064亿元，中长期贷款增加6828亿元；非金融企业及其他部门贷款增加2.71万亿元，其中，短期贷款增加9543亿元，中长期贷款增加1.48万亿元，票据融资增加1643亿元；非银行业金融机构贷款增加632亿元。3月份人民币贷款增加1.18万亿元,同比少增661亿元。月末外币贷款余额9146亿美元，同比增长4.0%，一季度外币贷款增加341亿美元。
In fact, you need to go back to 2012 to find a lower number.
3月末，本外币贷款余额60.77万亿元，同比增长15.5%。人民币贷款余额57.25万亿元，同比增长15.7%，比上月末高0.5个百分点，比上年末低0.1个百分点。一季度人民币贷款增加2.46万亿元，同比多增2170亿元。分部门看，住户贷款增加4995亿元，其中，短期贷款增加2581亿元，中长期贷款增加2414亿元；非金融企业及其他部门贷款增加1.95万亿元，其中，短期贷款增加1.05万亿元，中长期贷款增加5906亿元，票据融资增加2575亿元。月末外币贷款余额5595亿美元，同比增长17.2%，一季度外币贷款增加211亿美元。
Back in 2016 and 2017, M1 growth was meaningfully faster than M2 growth in China, which typically indicates a high willingness to spend or invest in the economy.
That is a bullish sign.
On the contrary, if M1 growth is below M2 growth by a wide margin, it usually indicates people would rather save more than spend or invest.
That negative gap was deepening throughout 2024 till the famous 924 stimulus.
Using revised M1 growth rate, the negative gap was about -5% at the beginning of 2024 and about -10% in Sep 2024.
That negative gap shrunk to about -1% in Sep 2025 and about -3% in Feb 2026.
Actually, looking at M2 growth alone might give you a glimpse of China’s economy pulse and sentiment.
Fed is hard to react to oil supply shock.
1/ Fed is designed to manage demand. It cannot produce more oil or open shipping lanes. Historically, the Fed “looks through” supply shocks unless they start to bleed into the broader economy (secondary effects / expectation for inflation rises).
2/ Energy shocks often spike and subside relatively quickly. However, Fed policies take months or even years to fully permeate the economy. Fed would be slowing down the economy exactly when it might be trying to recover from the high energy costs.
“By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate.”
It’s a very keen observation and description by Kenneth Rogoff in his book Our Dollar, Your Problem that China prioritizes a USD exchange-rate objective over domestic inflation targeting.
What are the implications?
1/ Tighter capital movement control
The “impossible trinity” says a country cannot simultaneously have a fixed (or tightly managed) exchange rate, free capital movement, and independent monetary policy.
Since China uses the peg and China wants more independent monetary policy (when Fed raised interest rate last cycle in 2022, China didn’t follow), it has to have tighter capital movement control.
Or PBOC policy shall move more in-line with US Fed policy.
2/ Real exchange rate moves
With a mostly fixed nominal RMB/USD, the real exchange rate moves via the inflation gap:
If China inflation below the US, China gets a real depreciation (more competitive) even without nominal RMB weakening. This is what happened in the last few years, and foreigners will find traveling in China very cheap (e.g. Chinese hotel price).
If China inflation above the US, China gets a real appreciation (less competitive) even if the nominal stays “stable.”
3/ Intervention can force money/credit swings
Defending the exchange-rate path often requires buying/selling FX:
When inflows are strong, the central bank buys USD and creates RMB liquidity (which can be inflationary/credit-boosting).
When outflows dominate, defending the rate can drain RMB liquidity (which can be contractionary).
4/ It tends to bias the economy toward tradables and away from household consumption
If the RMB is held weaker than it otherwise would be (or just “less strong” than productivity would imply), it functions like:
a subsidy to exporters/tradable producers, and
a tax on importers/consumers (imports cost more in RMB terms than under a stronger currency).
5/ Bigger reserves and bigger balance-sheet exposure to USD assets
Exchange-rate management usually accumulates FX reserves (especially in surplus periods). That brings valuation risk when USD moves, opportunity cost (low-yield reserve assets vs domestic needs), geopolitical/financial exposure to the dollar system.
In Our Dollar, Your Problem, author raised this question – why China didn’t see a faster inflation it should see. The higher inflation rationale is that when tradable goods sector productivity rises fast, this part of the economy will attract more workers, presumably from non-tradable goods sector. Thus, wage should rise and likely at a faster pace than the productivity gain in non-tradable goods sector, which should result in higher inflation in non-tradable goods sector to counter labor inflation.
In the books, the author mentioned one plausible explanation, which was Chinese gov could move massive population from rural areas to cities and factories. The amount of inflow was so large that wage increases were not seen. Thus, there is lower than expected service inflation.
This sounds reasonable.
I have additional arguments on #why China didn’t see strong inflation in non-tradable goods sector.
1/ The high-end of services are not priced fairly in China.
Unlike more capitalism-driven societies, the high-end supply and demand are exchanged in non-monetary channels. E.g. think about the high-end healthcare senior gov officials may receive in China – that’s not charged at the “market price”. Thus, you can’t measure the inflation, if that doesn’t carry a “price”.
In additional, the high-end services may not be available to the public or openly marketed. Thus demand is lower than it should be.
2/ High-end demand is shifted abroad.
Chinese wealthy like to shop, travel and live abroad.
This lowers the inflation across the board.
From Our Dollar, Your Problem
1/ European countries’ bond is not same as US Treasury debt. EU bonds might be, but there is no euro-wide fiscal authority with significant spending and taxation powers
2/ no euro-wide deposit insurance scheme
3/ each country has its own bankruptcy laws