Analysis of A-Shares and RMB Exchange Rate Amid 2024 China's Record Trade Surplus

According to the provided information, China’s trade surplus hit a historic high in 2024 (1.07 trillion USD, up 21% year-on-year), while domestic deflation (CPI 0.7%, PPI -2.2%) coexisted with weak resident income/consumption (unemployment insurance expenditure rose by 22%). This indicates that the expansion of trade surplus is mainly driven by export recovery and import contraction, rather than domestic demand improvement; enterprises failed to quickly repatriate funds earned overseas, leading to the surplus not being effectively converted into domestic liquidity and resident income, forming a typical structural divergence of “strong exports, weak domestic demand”.

1. Export-related sectors still have valuation support
   • The recovery of export demand has improved the fundamentals of industries such as home appliances, machinery/automation, and electronic manufacturing, especially leading companies with “overseas order digestion + local supply chain advantages”. Short-term profit recovery is expected to further promote their valuation repair.
   • However, attention should be paid to whether overseas demand is truly sustainable, the US dollar cycle, and structural risks brought by supply chain adjustments.

2. Sector differentiation under domestic demand and deflation pressure
   • Both CPI and PPI are low, meaning there is no upward momentum in macro prices, and consumer sectors (especially mid-to-downstream retail, auto, catering, etc.) still face great pressure.
   • On the contrary, defensive industries with “stable cash flow + weak price elasticity” (such as pharmaceuticals, food, low-cost consumption) and real estate weights with balance sheet flexibility may be more favored by capital.
   • In addition, deflation means tight liquidity, and interest rates and monetary policy space will become the focus of the market. If the central bank continues to support manufacturing and private enterprises with targeted liquidity tools (such as MLF, PSL), related small and medium-sized innovative enterprises are expected to benefit.

3. Spillover risk of ineffective liquidity repatriation
   • The retention of enterprises’ overseas profits leads to no synchronous increase in domestic liquidity, which may suppress employment and resident income, further weakening consumption pull. Investors need to be alert to the chain断裂 where “profits driven by the export end” cannot promote “domestic demand recovery”. In the short term, it may limit the overall trading volume of the stock market, and capital is more likely to concentrate on “beneficial and risk-controllable” tracks.

1. Imbalance between fundamental support and liquidity transmission
   • Although the trade surplus is a record, due to import decline and profits staying overseas, the actual capital inflow is limited, so the RMB fundamentals have not improved significantly; coupled with the Fed’s interest rate hike expectations and high overseas capital costs, the offshore RMB once breaking 7 is an embodiment.
   • Capital account data may still be tight, especially under the superposition of changes in foreign exchange reserve scale and “poor overseas capital repatriation”.

2. Policy side stabilizes exchange rate short-term, long-term depends on domestic demand recovery
   • The People’s Bank of China may maintain exchange rate stability through mid-price guidance and foreign exchange intervention, but if the trade surplus continues to rely on exports and import contraction, and domestic demand does not recover, the RMB will still be under pressure, and the exchange rate elasticity may also rise slightly.
   • If resident income cannot be improved and consumption cannot be boosted (such as accelerating pension, medical, education and other expenditures), the strong exchange rate will be unsustainable, and even further adjusted under the strong US dollar cycle.

1. Select enterprises with certain export improvement
   ：Prioritize private/export-oriented mid-to-upstream enterprises with concentrated overseas orders, supply chain control, and strong export price bargaining power, but pay attention to exchange rate shocks, raw material costs, and geopolitical risks.
2. Layout sectors benefiting from deflation or supported by steady growth
   ：Such as core consumption (food, pharmaceuticals), high-end manufacturing services, energy efficiency transformation, green infrastructure, etc. Pay attention to policy support and capital inflow.
3. Monitor liquidity and policy signals
   ：When liquidity is tight, local fiscal drag, and social financing is weak, market sentiment is prone to fluctuations. Focus on the promotion of capital supply to specific industries by macro policies (such as special re loans, local bonds).
4. Exchange rate aspect
   ：In the short term, the RMB exchange rate still fluctuates under the background of “good fundamentals but weak liquidity”. It is recommended to hedge risks through foreign exchange or allocate some foreign currency assets; at the same time, pay attention to cross-border capital flows, changes in foreign exchange reserves, and the repatriation rhythm of foreign exchange income of export enterprises.

• If the future surplus expansion is accompanied by import recovery, enterprise profit repatriation, or domestic demand policies taking effect, the A-share consumer sector and RMB are expected to benefit together; otherwise, if “trade surplus + deflation” continues and resident income weakness intensifies, the stock market and exchange rate will face double pressure. It is recommended to continuously track the quality of export orders, enterprise capital repatriation policies, China-US interest rate spreads, and the central bank’s liquidity operation rhythm.

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