CITIC Chief: RMB Appreciation and Asset Revaluation Are Certain; Global Macro Has Five Uncertainties and Five Certainties

Authors: Huang Wentao (Chief Economist, China Securities Co., Ltd.; Council Member, China Chief Economist Forum) and Zhu Linning

The current global macroeconomic landscape is characterized by "five uncertainties and five certainties," driven primarily by the AI technology revolution, international monetary reform, and geopolitical conflicts. At its core, this reflects the concentrated global manifestation of productivity transformation and production relation adjustments.

Introduction: AI, Currency, and Objectives — Uncertainty and Certainty in a Time of Great Change

I. Two Tendencies in AI, Currency, and Commodity Price Fluctuations

In just nine months from early 2026 to the present, global capital markets have experienced significant volatility across three major sectors: AI technology, international currencies, and geopolitical energy. Some key AI stock indices, interest rates, exchange rates, and commodity prices have seen short-term fluctuations on a scale seen only once in decades. This volatility broadly reflects at least two prevailing tendencies in the market:

First Tendency (Optimistic): Pays greater attention to the positive factors of change in AI technology, international currencies, and geopolitical dynamics, tending to assign more positive market pricing to future macroeconomic expectations.

Second Tendency (Cautious): Focuses more on the risk factors associated with these changes, tending to adopt more prudent market pricing for the time being.

Both tendencies have been partially validated and partially challenged by actual market movements this year. The divergence stems primarily from differing expectations regarding three core issues.

II. Three Core Issues Shaping Future Macroeconomic Expectations

1. AI Technology Revolution and Its Macroeconomic Impact

• Certain: AI is the most important underlying technological advancement, a long-term force for significantly enhancing productivity and reshaping production relations, and a decisive technological factor in future global macroeconomics and great-power competition.
• Uncertain: How will AI's partial replacement of human "intelligence" and "attention" actually transmit to and impact the macroeconomy over the long term? This includes complex issues like converting AI investment into tangible output, restructuring industry and profit chains, and ensuring employment and social equilibrium during this transition.

1. International Monetary Reform and Its Future Direction

• Certain: The "three-high problems" (high debt, high inflation, high interest rates) in advanced economies are accelerating. The "unipolar dollar model" is becoming increasingly unstable, necessitating a more equitable international monetary system reform that incorporates the development demands of emerging markets and Global South countries.
• Uncertain: The actual direction of U.S. monetary, fiscal, and macroeconomic policies, and their impact on global monetary conditions and asset prices, remains highly uncertain. This includes pressing issues like the sustainability of advanced economy debt, the duration of the current U.S. rate hiking cycle, the yen exchange rate and carry trade, and the stability of international crude oil prices.

1. Global Macroeconomic Development Goals and Governance Choices

• How can global cooperation and win-win outcomes for all humanity be achieved amidst major changes like the AI and monetary revolutions?
• Framework: Drawing on Karl Marx ("the essence of man is the ensemble of social relations") and Abraham Maslow (human needs range from basic to growth, with motivations for self-actualization and self-transcendence), the judgment framework is:
• If AI serves human needs and is set by human motivation, it acts as a productive tool with positive macroeconomic effects.
• If AI becomes alienated to serve its own needs, it risks detaching from human economic and social development, warranting greater caution.
• International monetary reform should better balance "basic security, innovative development, national interests, and international justice," constructing a more balanced global system centered on humanity's shared pursuit of well-being.

Uncertainties: Five Global Macroeconomic Uncertainties

1. Uncertainty in the Fed's Monetary Policy Path and Current Hiking Cycle

At the August 28 Jackson Hole symposium, Fed Chair Kevin Warsh stated that clear forward guidance is no longer applicable, and the Fed is adopting a more data-dependent, "fuzzy" approach. He cited the "hall-of-mirrors problem," implying no stable forward guidance exists and the Fed will change based on its data observations.

Warsh cited "strong" data points (strong corporate CapEx and profits, low credit spreads, resilient consumption, stable unemployment at 4.1%, PCE inflation at 3.7%). However, many of these are highly interest-rate-sensitive and may retreat with further hikes. For instance, while S&P 500 CapEx grew ~20.4% in Q2, free cash flow turned negative. Revenue growth slowed, and the labor participation rate fell from 62.1% to 61.6%.

Crucially, the inflation data most directly motivating rate decisions may not be fully responsive to rate hikes. Three major inflation components are not entirely interest-rate-driven:

• Oil price inflation (driven by Middle East geopolitics)
• Electricity price inflation (driven by AI data center demand)
• Medical service price inflation (driven by U.S. healthcare system reform and political dynamics)

These factors increase the exogenous uncertainty of the U.S. interest rate path. Furthermore, with U.S. equity valuations, leverage levels, and debt/interest rates at multi-decade highs, the potential impact of further rate hikes on financial stability requires more observation.

2. Uncertainty in the Sustainability of Advanced Economy Debt

The core issue is not repaying principal but whether the "interest snowball" can continue rolling under high interest rates. U.S. federal debt surpassed $40 trillion in August 2026 (debt-to-GDP ~123%). Japan's government debt is ~¥1344 trillion (debt-to-GDP ~205%). Italy, France, and the G7 average have debt-to-GDP ratios of ~139%, ~118%, and ~126%, respectively.

The retreat of debt monetization forces advanced economies to confront the structural question: "Who will buy our government bonds?" Central bank purchases were a key support for the past decade. Now, with most advanced economy central banks tightening or shrinking balance sheets, it is highly uncertain whether private sectors, foreign central banks, and domestic institutions can absorb the large supply.

A critical constraint is interest expenditure. The tipping point for debt sustainability is when market rates persistently exceed nominal GDP growth, creating a spiral: deficit → bond issuance → rising rates → expanding interest → larger deficit. The CBO estimates U.S. federal net interest支出 will exceed $1 trillion in FY2026, surpassing defense spending for the first time, with a total deficit of ~$1.9 trillion (~6% of GDP).

Historically, four main paths exist for debt resolution: inflation, currency depreciation, fiscal consolidation, and debt restructuring. Inflation and currency depreciation are the most common. Fiscal consolidation and restructuring are often attempted but difficult to implement effectively without a crisis.

3. Uncertainty in the Yen Exchange Rate and Global Carry Trade Mechanism

The yen carry trade has been a major leverage strategy in global financial markets for over a decade, with "unwinding risk" being nonlinear and contagious. Under Japan's ultra-low rates, global funds borrowed yen to invest in higher-yielding currencies and risk assets. When stable, this provides liquidity; but if the yen rises or the interest rate differential narrows, it rapidly becomes a "liquidity drain."

The August 2024 episode serves as a precedent: USD/JPY fell from ~161 to ~142 in days, and the Nikkei 225 fell 12.4% on August 5 (largest single-day drop since 1987), triggering global volatility via carry trade unwinding. Current short positions are even larger. While the direction of narrowing interest rate differentials is clear, whether the unwinding will be gradual or abrupt, and whether global assets can absorb it smoothly, is highly unpredictable.

Since 2026, uncertainty has increased due to Japan's economic pressures (industrial, inflation, geopolitical, trade) and the unknown extent of yen carry trade exposure to highly valued, crowded U.S. tech stocks. The yen and carry trade face multiple uncertainties: BOJ rate hikes, Fed rate hikes, and joint BOJ/Fed intervention. U.S. Treasury Secretary Bessent even stated publicly in September, "I am the house now... if you want to bet against me, go ahead." These factors amplify the two-way volatility risk for the yen.

4. Uncertainty in Crude Oil: Geopolitical Shocks and Supply Security

Oil is no longer primarily demand-priced but is increasingly a strategic bargaining chip priced directly by geopolitical risk. The renewed U.S.-Israel-Iran conflict since June has significantly hindered navigation through the Strait of Hormuz (carrying ~20% of global oil and ~25% of LNG trade) since July. In September, Saudi Arabia's East-West pipeline was attacked and shut down.

The IEA estimates this conflict could reduce global daily oil supply by ~5.7 million barrels, with over 10 million barrels/day of capacity from Middle East producers blocked. Full supply recovery is expected to be delayed until 2027, while U.S. strategic petroleum reserves are at their lowest since 1983.

Simultaneously, price swings driven by "war expectations" and "financial futures trading" are extreme. For example, Brent crude rose from $90.67/barrel on August 31 to $109.29 on September 11 (a 7.98% surge on heightened tensions), then fell 3.08% to $104.32 on September 12 after a U.S. "de-escalation signal," and further to ~$97 by September 21. For most traders, oil has become a highly risky asset with two-way uncertainty.

Crucially, oil prices are the most important commodity influencing global inflation and inflation expectations, creating supply-side instability for the broader global economy. Prolonged supply shocks will transmit downstream via fuel, chemicals, and transportation, causing further complex disruptions.

5. Uncertainty in the Long-Term Global Macroeconomic Impact of the AI Era

• Macro Level: AI's impact exhibits a "J-curve" effect. Short-term utility is difficult to measure precisely, while long-term utility depends on actual productivity gains. As a general-purpose technology, AI's productivity boost requires a long process of diffusion, organizational change, and capital reallocation. Historically, electricity and the internet took over a decade from large-scale investment to significant productivity data improvements. Currently, AI's contribution to GDP is more evident in capital expenditure formation than in total factor productivity growth, creating significant long-term uncertainty.

• Employment Level: The "replacement" and "creation" of jobs by AI are asymmetric. The replacement of cognitive, repetitive white-collar jobs may outpace the creation of new ones. If labor income share falls while capital gains concentrate in a few tech giants, global aggregate demand faces long-term "effective demand shortage" pressure. This underscores the "people-centered" framework: if AI becomes alienated, its social costs could outweigh productivity benefits. Support for new job creation and worker retraining is crucial.

• Corporate and Capital Market Level: The sustainability of AI capital expenditure is highly dependent on corporate profit realization and overall liquidity conditions. Global tech giants' AI CapEx is at record levels, but free cash flow and earnings face risks of underperformance. If AI application commercialization disappoints in the coming years, the "high-growth premium" may adjust, triggering valuation corrections and cyclical adjustments in the tech sector and its supply chain.

Data from an NBER survey (March 2026) of ~6,000 executives in the U.S., UK, Germany, and Australia supports this: 69% of firms actively use AI, but ~90% report no significant impact on employment or productivity yet. Over the next three years, executives expect AI to boost productivity by an average of 1.4% and output by 0.8%, but also to reduce employment by an average of 0.7%.

Certainties: Five Global Macroeconomic Certainties

1. Certainty of Inflation Rigidity in Advanced Economies

The inflation center in advanced economies has risen systematically due to structural changes on both supply and demand sides. The 2% target is proving difficult to achieve stably. This inflation is not a simple monetary phenomenon but results from structural supply constraints (labor shortages, supply chain restructuring, geopolitical fragmentation, energy transition costs) and demand-side monetary overshoot (deficit spending, debt economy). These supply constraints are long-term and rigid, meaning inflation is unlikely to easily return to near-zero levels without a significant recession.

In the labor market, structural tightness (aging, early retirement, tighter immigration) keeps wage growth above potential productivity growth, sustaining a "wage-price spiral," albeit more moderate. Services inflation, with its higher wage cost share and slower adjustment pace, remains particularly sticky. Unless labor market conditions deteriorate significantly, services inflation will continue to be a sticky factor for overall inflation.

U.S. CPI has been above the Fed's 2% target for 65 consecutive months since March 2021. The Fed's September 2023 dot plot median projection suggests inflation may not return to 2.0% until 2029. Key sticky components include oil & gas, electricity, healthcare, some services, and computing/electronics.

2. Certainty of Rising Yields Driven by Debt Pressure and Inflation

The combination of inflation and debt is pushing up long-term yields. The 10-year U.S. Treasury yield, the global asset pricing anchor, briefly exceeded 5.00% in September 2026, and the 30-year yield rose above 5.31%, both hitting highs not seen since the 2007 subprime crisis. This is not a U.S.-only phenomenon: the German 10-year yield rose to ~3.50% (highest since 2009, up from 1.86% at the start of the year), and the Japanese 10-year yield broke above 3% (a nearly 30-year high).

This synchronized upward repricing of long-term rates in advanced economies is driven by three forces:

1. Higher inflation and inflation expectations demanding higher compensation.
2. Large-scale fiscal-driven government bond issuance (e.g., U.S. deficit near 6% of GDP) widening term premiums.
3. Tightening global dollar liquidity, increased long-term debt issuance by large tech firms, and geopolitical disruptions raising risk premium demands.

Advanced economy sovereign bonds may be undergoing a "disenchantment" by global investors, no longer seen as "risk-free." A landmark event in 2026: gold surpassed U.S. Treasuries as the world's largest official reserve asset. According to the ECB, gold's share of global official reserves reached 27% by end-2025, while U.S. Treasury holdings fell to 22%. This occurred even with the 10-year U.S. yield at 5.0%, indicating declining attractiveness of advanced economy debt.

3. Certainty of China's Strong Import/Export Growth and Manufacturing Upgrade

Despite a complex global trade environment, China's exports surged in 2026, becoming a key driver of global trade and its own economy. In August 2026, total goods trade was RMB 4.6455 trillion (+19.8% YoY), with exports at RMB 2.7274 trillion (+18.6%) and imports at RMB 1.9181 trillion (+21.7%). For the first eight months of 2026, total trade was RMB 34.7753 trillion (+17.6%), with exports at RMB 20.1658 trillion (+14.6%) and imports at RMB 14.6095 trillion (+22.0%). General trade grew 10.5%, trade with Belt and Road countries grew 15.9%, private sector trade grew 17.6%, and mechanical/electrical product exports grew 21.9%.

This growth is not a short-term export rush but reflects China's manufacturing competitiveness upgrading from "scale advantage" to "comprehensive, resilient, and robust supply chain advantage." Amid global supply chain disruptions (energy costs, geopolitics, shipping, trade pressures), China's complete and stable industrial chain, efficient logistics, continuous technological progress, and "engineer dividend" make it the most reliable "system base" and "stabilizing anchor" for global supply chains.

China is transitioning from a "large trading nation" to a "trading power." Export quality and technology content are upgrading, and trade patterns are diversifying. In 2025, China contributed about half of global export growth, with its share of intermediate and capital goods exports exceeding 40%. In Q1 2026, China accounted for 57.3% of global shipbuilding completions, 84.9% of new orders, and 69.8% of order books. For 15 of 18 major ship types, China ranked first in new orders. Trade diversification is strong: in the first eight months of 2026, trade with Belt and Road countries grew 15.9%, with APEC economies 22.2%, with SCO members 15.6%, with ASEAN 20.6%, with Latin America 14.5%, and with Africa 18.5%.

Notably, import growth has outpaced export growth this year, strengthening the "Export China, Buy in China, Invest in China" linkage. Imports grew 22% in the first eight months (fastest since 2021), with annual imports expected to hit a new record. China's Ministry of Commerce plans to further promote quality product imports for balanced trade development. According to WTO Q1 data, China's total trade contributed 2.1 percentage points to global trade growth, accounting for 20.3% of the global total, maintaining its position as the world's largest goods trader.

4. Certainty of China's Policy Resolve, High-Quality Development, and Technological Progress

China's macroeconomic policy consistently prioritizes domestic conditions, avoiding "flood irrigation" and focusing on structural reform for high-quality development. Monetary policy maintains stability and continuity, while fiscal policy emphasizes efficiency and leans towards technological innovation and social security. This policy resolve provides a stable foundation for China's long-term development and offers a rare source of stability for the global economy.

Self-reliance in science and technology is accelerating in key areas, with "new quality productive forces" becoming a core engine of growth. China is increasing investment in AI, quantum computing, semiconductors, advanced manufacturing, and biotechnology, combining a new national system with market mechanisms to tackle core technologies. This direction is particularly valuable amidst intensifying global tech competition.

In the first eight months of 2026, new growth drivers (equipment manufacturing, high-tech manufacturing, digital products) contributed over half of the growth in value-added for all industrial enterprises above a designated size. In August alone:

• Equipment manufacturing value-added grew 12.1% YoY, accounting for 38.3% of total industrial output.
• High-tech manufacturing value-added grew 16.7%, with integrated circuits (+101.5%), spacecraft/launch vehicles (+36.7%), optoelectronic devices (+36.1%), and electronic industrial equipment (+31.2%) leading.
• Digital product manufacturing value-added grew 15.7%, with electronic components/equipment (+22.9%), smart equipment (+14.2%), and computer manufacturing (+11.9%) leading.

5. Certainty of RMB Appreciation, RMB Asset Revaluation, and Investing in China

The RMB exchange rate is entering a long-term, stable appreciation channel. China's steady progress as a trade and financial power, rising manufacturing competitiveness, and increasing openness to cross-border capital flows provide a solid long-term fundamental basis. As the global monetary system becomes more multipolar, the RMB's role in pricing, payment, settlement, and reserves will continue to rise, providing institutional support for long-term RMB asset revaluation.

Since 2025, the RMB has appreciated steadily by about 10% against the USD, including ~3% in 2026. This has occurred amidst a volatile dollar index and U.S. Treasury yields near 5.0% (a ~20-year high), demonstrating the RMB's strong endogenous resilience and market confidence in its long-term safety and growth potential. China is one of the few major economies maintaining stable long-term interest rates, with its long-term bond yields and risk premiums nearly 300 basis points lower than comparable U.S. Treasuries, signaling global capital is choosing a new "international safe asset" and "long-term appreciating asset."

From an asset allocation perspective, RMB asset revaluation means global funds will recalibrate their benchmark weight for Chinese assets. The "new four bulls" in Chinese equities, increased foreign allocation to Chinese bonds, and the rising share of RMB in international settlement and reserves will form a mutually reinforcing positive feedback loop. Core sectors in China's A-share market (strategic emerging industries, finance, real estate) offer global investors a long-term opportunity to share in China's safe, stable, and sustainable development in an uncertain world.

Conclusion: Investing in Certain China in an Uncertain World

The "uncertainties and certainties" of the global macroeconomy ultimately reflect the concentrated global manifestation of productivity transformation and production relation adjustments. The five uncertainties represent a sober recognition of the external environment; the five certainties represent a firm confidence in the Chinese economy.

• The "Fog" of Global Transformation: Fed path, high debt, yen carry trade, oil shocks, AI impact.
• The "Compass" to Navigate the Fog: Inflation rigidity, rising rates, manufacturing upgrade, policy resolve, RMB asset revaluation.

Combining these two perspectives is essential for making rational investment decisions in a complex environment.