China’s domestic auto market saw sales drop 14.8% from a year earlier in January, reports Caixin. This comes as the industry grappled with a shift in government support policies.

Total domestic sales fell to 1.665 million vehicles last month, down 33.9% from December, the China Association of Automobile Manufacturers (CAAM) said Wednesday. Domestic new-energy vehicle (NEV) sales dropped 18.9% from a year earlier to 643,000 units in January, a steeper decline than the 11.9% fall in gasoline-powered vehicle sales, which totaled 1.022 million units.

Two main factors drove the slump. Subsidies in 2025, which provided fixed-amount rebates and fueled rapid growth in affordable NEVs, are being replaced by subsidies tied to vehicle prices. At the same time, the government adjusted the purchase tax on NEV starting in 2026. After benefiting from a full exemption since September 2014, buyers are now required to pay a 5% tax, effectively raising acquisition costs.

Semiconductor Manufacturing International Corporation reported a 12.8% increase in fourth-quarter revenue, reports Caixin, though net profit declined as heavy spending on capacity expansion weighed on earnings.

China’s largest chip foundry posted revenue of $2.49 billion for the three months ended December, according to a Tuesday earnings release. Net profit fell 24.9% from a year earlier to $203 million, as higher depreciation expenses cut the company’s gross margin by 3.4 percentage points to 19.2%.

For full-year 2025, revenue rose 16% to $9.33 billion, while net profit climbed 39.1% to $685 million, supported by stronger wafer sales and improved capacity utilization.

China’s central bank set the yuan at the strongest rate since mid-2023, fixing it at RMB 6.9438 to the dollar, continuing a trend from April 2025 when it hit its lowest point since 2007 of 7.3498. However, comparing it against other currencies, it appears as though it is currently more that the dollar is weakening than that the yuan is strengthening in its own right.

It is significant, in that the yuan is a controlled currency, that Beijing is deciding to strengthen the yuan against the US dollar, the world’s main trading currency. A stronger yuan means a tougher time for Chinese exporters and somewhat cheaper imports, both of which have some impact on China’s record trade surplus with the rest of the world, a growing source of contention. 

The other advantage of a stronger yuan is that it improves its chances of being treated seriously as an international currency, in spite of the fact that it is controlled. The overall sense of the market is that Beijing is okay with the yuan continuing to strengthen in the months ahead.

China’s consumer price inflation likely slowed in January due to the later timing of the Lunar New Year, while factory-gate deflation might show further signs of easing amid rising global commodity prices, reports Caixinciting its own survey.

The survey of 12 domestic and international institutions puts the average forecast for the year-on-year rise in the consumer price index (CPI) at 0.5%, down 0.3 percentage points from December’s actual reading. Economists attributed the softer CPI reading mainly to the shifting holiday calendar. With the Lunar New Year falling in mid-February this year—nearly 20 days later than in 2025—festive demand has yet to boost January consumption. 

By contrast, producer price deflation is expected to continue narrowing. The survey showed the producer price index (PPI) likely fell 1.5% year-on-year in January, an improvement of 0.4 percentage points from December’s actual reading.

As global capital trickles back toward China, policymakers are using tougher enforcement and cooling measures to slow the market’s pace in order to strengthen its appeal in the long term, reports Reuters.

With fund managers now seeking to diversify away from dollar-heavy portfolios, Beijing’s calibrated approach could help reverse years of retreat when some investors even called the country “uninvestable”.

Broader cooling efforts include tightening margin financing rules, curbing high-frequency traders’ access to exchange data, and curtailing stock-picking “influencers.” Sovereign funds, meanwhile, have pared back equity holdings. “The art of the slow bull is in effect,” fund consultancy Z-Ben Advisors said. The market is entering a self-sustaining cycle as “dynamics suggest a growing level of confidence in market depth from regulators and investors alike.”