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China servicesbasedonpermanentresidence Economist, ChinaThe Hongkong and Shanghai Banking Corporation Limitedtaylor.t.l.wang@hsbc.com.hk+85222888650Jing Liu against China while China indicates potential retaliation Chief Economist, Greater ChinaThe Hongkong and Shanghai Banking Corporation Limitedjing.econ.liu@hsbc.com.hk+85239410063Heidi Li • Anti-involution campaign to continue with institutional reformsin the pipeline AssociateGuangzhou On 25 May, the State Council issued opinions on promoting the provision of basicto strengthen education rights for migrant workers'children, include non-hukouhouseholds within the coverage of public rental housing, improve the system forenrolling insocial insurance,strengthenbasicmedical provision,enhanceemployment assistance, and improve last-resort basic services. Measures will focuson optimising the layout of public facilities based on population mobility trends,allocatingscarceserviceresourcesviaapoints-basedsystem,strengtheningfiscaltransferpayments,and optimising theallocation ofurban construction land. Themovemarks an essential step towards the“people-centred"newurbanisationmodel. Unlike previous urbanisation strategies that used to focus on shifting rurallabourinto cities to supportmanufacturing andconstruction,thenewmodel positionsdomestic market and boost the consumption-to-GDP ratio via“investing in people".Strengtheningaccesstopublicservicesforurban-basedmigrantworkersandfamilies (c170m people) constitutes an integral element of this strategy.The agendatoexpandpublic serviceprovisionaimstoreducemigrantworkers'precautionarysavings and unlock their consumption potential. The government's efforts to shift tostructural solutions to support consumption were also reflected infiscal allocations,with a larger share of general public budget spending directed to livelihood-relatedareas since the start of the year (chart 4). Meanwhile, if China can successfully growits domestic market, it is also promising to help improve relations with tradingpartners through increased imports demand. Trade: China-EU trade disputes are escalating China's exports growth and a wider trade surplus with the EU are contributing toheightenedtradetensions(chart5).TheEuropeanCommissionissettodiscussnewtrade policies concerning China on 29 May, which may lead to new restrictivemeasures (Bloomberg,21 May).This follows the decision on 19 May to reduceduty-free steel import quotas by 47% and double the out-of-quota tariff. TheseactionspromptedastrongerpushbackfromtheChineseside.TheMOFCOMnotedthat China will respond firmly with countermeasures if the EU insists on pushingahead with discriminatory restrictivemeasures against China (Xinhua,21 May). HSBCFundingtheFutureSurvey Sentiment, Al and Private Credit Click to view Issuer of report: The Hongkong and ShanghaiBankingCorporationLimited Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Investment Research at:https://www.research.hsbc.com and EVs, recent moves suggest the EU is advancing a broader security agenda, such asrevisionstotheCybersecurityActand the Industrial AcceleratorAct.Theseactions mayaffectbroaderChinesefirms, especially inenergy related sectors.In2025,EVs, lithium-ionbatteryandsolar cells togetheraccounted for8.3%of China's exports to the EUwhile the region accountedfor c40%of these products'exports.As noted by HSBC's Chief Asia Economist Fred Neumannet al., China can weather the impact of US protectionism, but tariff cascades from other tradingpartners will present a more severe challenge (see Tariff cascade in action, 25 Feb 2025). China and supply-chain efficiency. For instance, the EU Chamber of Commerce in Chinareported that around 25% of European companies in China are shifting more productionprocesses to China (Xinhua,3Feb).China's Commerce Minister Wang Wentao is alsoexpected to visit Brussels in late June for key talks with EU Trade leaders (SCMP, 22 May),whichshouldprovideopportunitiesforbothsidestonegotiate.Separately,themid-MayUS-China summit signalleda constructive tone and China's exports to the US also rose c11% y-o-yin April, suggesting some US orders are returning. Stabilised US-China relations may also helpease EU-Chinatensions. Anti-involution campaign: institutional reforms remain a top priorityPremier Li Qiang chaired a State Council executive meeting that reiterated building a unified national market as a core requirement for high-quality development. The meeting called fordeeper institutional reforms, with priorities including property-rights protection, market accessrules, fair competition enforcement, effective social credit system, and market exit mechanisms(Xinhua, 21 May). The same day, a Qiushi commentary -published in the wake of President Xi's16 May article urging resources and factors of production to cluster around the real economy-added th