The Financial Silk Road

Mergers and Acquisitions

China’s National Financial Regulatory Administration has overhauled rules for bank lending to mergers and acquisitions, cutting the maximum exposure to a single borrower to 2.5% of a bank’s tier-one capital while loosening some payment restrictions to better manage risk and support productive deals. The changes aim to curb concentration and leverage, tighten conditions for increasing stakes in already-controlled firms, and clarify limits on loan use, including banning refinancing of existing M&A loans.

Tianqi Lithium Corp. has lost its final legal bid to block a deal giving Chile’s state-owned Codelco control of SQM, clearing the way for the nationalization of the world’s second-largest lithium producer. Under the joint venture, Nova Andino Litio SpA, Codelco will hold a 51% controlling stake, and the Chilean government is projected to capture up to 85% of lithium profits from 2031 onward. The agreement also includes safeguards to ensure stable lithium supply to China, while Tianqi faces diminished control and potentially lower future returns.

Zijin Mining is set to acquire Canadian miner Allied Gold for C$5.5 billion ($4 billion), marking its largest-ever deal and expanding its gold assets in Africa amid record-high bullion prices. The acquisition includes producing and near-term mines in Mali, Côte d’Ivoire, and Ethiopia, boosting Zijin’s output toward its goal of over 100 tons of annual gold production by 2028. Funded through existing cash, the deal is expected to generate synergies with Zijin’s African portfolio and deliver rapid returns, with Allied Gold shareholders backing the all-cash offer.

China’s Chalco and Rio Tinto are jointly acquiring a controlling 68.6% stake in Brazil’s Companhia Brasileira de Alumínio (CBA) for 4.69 billion reais ($886 million), securing low-carbon aluminium production amid soaring metal prices. The joint venture, with Chalco holding 67% and Rio Tinto 33%, strengthens their strategic partnership and expands their operations in Latin America, while supporting ESG and renewable energy initiatives. CBA, Brazil’s only fully integrated aluminium producer, supplies over a third of the country’s primary aluminium market and operates entirely on renewable energy.

Ports

Australia has reiterated its intention to reclaim the Port of Darwin from Chinese operator Landbridge, citing national security and strategic interests linked to U.S. military deployments in the region. The 99-year lease, awarded in 2015, has been profitable for Landbridge, which warned that overturning the agreement could harm bilateral economic ties. Beijing has criticized the move, emphasizing that the rights of Chinese companies operating under market rules must be protected, setting up a potential legal and diplomatic confrontation.

Panama’s Supreme Court ruled that concession contracts for the Cristobal and Balboa ports, operated by CK Hutchison Holdings’ unit PPC, are unconstitutional and must be cancelled. PPC, which invested over $1.8 billion and created thousands of jobs over nearly three decades, said the decision violates the legal framework, undermines contract sanctity, and warned it could deter future investors. China’s Foreign Ministry echoed these concerns, signalling it will protect the rights and interests of Chinese companies amid heightened geopolitical scrutiny of canal-linked assets.

Trade

China posted a record goods trade surplus of $1.19 trillion in 2025, up 19.8% from 2024, driven by resilient exports and slower import growth. While exports to the U.S. fell due to tariffs, shipments to ASEAN, Africa, the EU, and India surged, with high-value machinery and transport equipment increasingly dominating the surplus. Meanwhile, China’s deficits were concentrated in resource-rich and technologically advanced countries, including Japan, South Korea, Taiwan, and Peru, amid rising imports of semiconductors and raw materials.

China has banned exports of dual-use items to Japan that could enhance its military capabilities, responding to Japanese Prime Minister Takaichi Sanae’s remarks on potential intervention over Taiwan. The ban covers over 900 items, including rare earths, advanced electronics, aerospace, and nuclear-related technologies, and violators face legal consequences under China’s Dual-Use Export Control Regulation. The move underscores China’s leverage over Japan, which remains heavily dependent on Chinese rare earths, critical for defence technologies.

The U.S. has eased export restrictions on Nvidia’s advanced H200 AI chips, allowing sales to mainland China and Macao under a case-by-case review, though more powerful B200 chips remain banned. The rules include strict customer verification, shipment caps, and third-party performance checks to protect U.S. national security. The move restores Chinese market access for Nvidia, benefiting both the company and local AI firms reliant on high-performance chips for large language model training, while domestic chipmakers continue to expand rapidly.

Alibaba’s chip unit, T-Head, has unveiled a new processor, the Zhenwu 810E, designed for both AI training and inference. Positioned between Nvidia’s A800 and H200 chips in performance, the launch comes as Alibaba prepares a semiconductor spinoff amid China’s growing AI chip market.

The first shipment of iron ore from Guinea’s $20 billion Simandou project has arrived in China, marking a major milestone for the world’s largest untapped high-grade iron ore reserve. The 200,000-ton cargo, transported on the Capesize vessel Winning Youth, will be processed for Chinese steel mills, with Baowu Steel set to take a large share. Once fully operational, Simandou could produce up to 120 million tons annually, significantly diversifying global supply and reducing China’s reliance on Australia and Brazil.

Canada’s recent agreement to admit 49,000 Chinese new-energy vehicles allows Chinese firms to maintain a foothold in North America, preserve technological competitiveness, and link Canada’s resource supply with China’s manufacturing capabilities. This move signals that even close U.S. allies may pursue pragmatic cooperation with China, demonstrating that full decoupling is technically difficult and economically costly.

China has strongly condemned the EU’s new draft directive targeting “high-risk” vendors, calling it politically motivated protectionism that unfairly singles out Chinese firms like Huawei. The proposal would ban such vendors from public procurement and require removal of existing equipment within three years, citing cybersecurity and AI risks, with fines up to 7% of global revenue for violations. Beijing and Huawei argue the rules lack technical justification, could raise costs, and violate WTO law, while the EU frames the move as a necessary modernization of its digital security framework.

Texas Governor Greg Abbott has expanded the state’s ban on Chinese technology by adding 26 firms, including AI startups, e-commerce giants like Alibaba and Shein, and hardware makers like Xiaomi and CATL, bringing the total number of blacklisted Chinese companies to 50. The ban, first applied to TikTok in 2022 and codified in state law, has grown steadily, with the latest additions recommended by Texas Cyber Command to protect state networks and devices.

President Xi Jinping and UK Prime Minister Keir Starmer agreed to strengthen and expand bilateral ties, pledging a “long-term strategic partnership” during Starmer’s visit to China. China agreed to lower whiskey tariffs from 10% to 5% and is now considering visa-free entry for British citizens. The two countries also established a China-U.K. financial working group, and signed 12 intergovernmental cooperation agreements across trade, finance, healthcare, and education.

Steel and coal

China has pledged to take “all necessary measures” after the EU’s Carbon Border Adjustment Mechanism (CBAM) fully took effect, which requires importers to buy certificates covering the carbon emissions of products like steel, aluminium, cement, and fertilizers. The move is expected to hit Chinese steel exports hardest, potentially raising costs by up to 144 euros per ton due to default carbon intensity values, and threatening competitiveness in the European market. Analysts estimate CBAM could increase total costs for affected Chinese exports by over €12 billion in 2026, highlighting the growing impact of carbon pricing on trade. Chinese steelmakers must coordinate, invest in green technologies, and push for international recognition of their decarbonization data to avoid escalating costs and maintain competitiveness in Europe.

 China’s steel exports hit a record 119 million tons in 2025, surpassing the previous decade-old high of 112.4 million tons in 2015, as domestic demand continued to weaken. Despite the surge in volume, export value fell 1.3% to $82.6 billion, and average prices dropped 8% to around $694 per ton, reflecting the growing reliance on overseas markets to absorb excess supply. To address trade tensions and curb tax-evading exports, Beijing implemented an export licensing system on January 1, 2026, covering most steel products, while some finished goods like fasteners and household appliances remain exempt. Meanwhile, domestic consumption fell 5.4% to 808 million tons, and crude steel output declined more than 4%, even as iron ore imports rose slightly to 1.26 billion tons at a lower average cost of $98 per ton.

In 2025, China’s crude steel output fell below 1 billion tons for the first time in six years, dropping 4.4% year-on-year to 960 million tons, as the country continues shifting away from property-driven growth. Policies to control overcapacity, including strict limits on new production and precise management of existing output, have contributed to the contraction.

Rio Tinto and Fortescue have temporarily stopped using the Platts Iron Ore Index for shipments to China, switching to alternative benchmarks at the request of China Mineral Resources Group (CMR), the state-owned bulk buyer for Chinese steelmakers. The move highlights China’s growing influence over global iron ore pricing as it seeks long-term contracts better suited to domestic demand, while the international index market faces a period of diversification and adjustment. New initiatives like the COREX Portside Index, yuan-denominated settlements, and broader participation are reshaping how prices are set and giving Chinese steel mills more bargaining power.

China’s coal production hit a record 4.83 billion tons in 2025, but growth slowed sharply to 1.2% as regulators cracked down on overproduction to stabilize falling prices. Inspections and enforced production limits led to mine shutdowns across major coal regions, curbing supply and contributing to a 47% drop in industry profits. Despite a brief winter-driven price rebound, average coal prices fell 19% for the year, with power generation remaining the dominant source of demand.

Currency

On January 1, 2026, China has cut the U.S. dollar’s weight in its official yuan exchange rate basket to 18.3%, the largest adjustment in the index’s annual rebalancing, to better reflect shifts in global trade patterns. While the U.S. dollar remains the most influential currency, weights for the Australian dollar and Japanese yen will also fall, as the Hong Kong dollar gains the most.

The yuan has rebounded sharply since last year, rising about 4.4% against the dollar and breaking below 7 per dollar, driven by U.S. rate cuts and resilient Chinese exports. The rebound marks a sharp turn after years of decline driven by property-sector distresses and capital outflows. While some see room for further appreciation, others caution that global uncertainty could still limit a sustained upswing.

China’s foreign exchange reserves rose for a second month in December to $3.358 trillion, supported by a weaker U.S. dollar that boosted the value of non-dollar assets. At the same time, the central bank extended its gold-buying line to 14 months, lifting holdings to 74.15 million ounces, though the pace of purchases has slowed amid record-high prices.

Standard Chartered expects the yuan to strengthen to about 6.85 per dollar over the next year, arguing that Beijing is increasingly committed to a long-term “strong currency” strategy to boost the yuan’s global role. The bank says China is shifting away from prioritizing export competitiveness toward promoting yuan use in trade, investment and finance, with Hong Kong playing a bigger role in internationalization.

On January 1, 2026, China has overhauled the digital yuan, turning it from a cash-like instrument into an interest-bearing deposit that sits on commercial banks’ balance sheets. The shift is designed to boost adoption by giving banks financial incentives to promote e-CNY use, while allowing users to earn interest. The move marks a transition from a pilot, centrally driven model to a more market-integrated approach, while keeping the central bank–led architecture intact. The system uses a hybrid architecture combining a centralized ledger with blockchain for cross-border transactions, and incorporates smart contracts for supply-chain finance, government payments, and prepaid funds management. The upgraded digital yuan aims to strengthen (domestic) payment efficiency and lay the groundwork for international use.

China’s foreign exchange regulator, SAFE, has outlined its 2026 priorities to ensure businesses and individuals have adequate currency access while strengthening defences against global financial shocks. Key measures include expanding cross-border fund management, supporting new trade models like e-commerce, offering hedging tools for SMEs, and advancing banking forex reforms. At the same time, SAFE plans tighter supervision, enhanced risk management, and a revision of foreign exchange regulations to maintain market stability and protect reserves.

Central Bank

The People’s Bank of China pledged to maintain a moderately accommodative monetary policy in 2026, using tools like reserve requirement and interest rate cuts to keep financing costs low and support high-quality economic growth. The PBOC aims to ensure ample liquidity, encourage credit expansion, and manage risks, including debt burdens of local government financing vehicles and systemic strains at non-bank financial institutions through a liquidity mechanism. The central bank also plans to expand transparency in loan costs and strengthen market access and financial reforms, including Bond Connect and Swap Connect programs with Hong Kong.

China’s central bank cut interest rates on structural policy tools and launched a 1 trillion yuan relending facility for private firms, marking its first monetary easing move of 2026. The measures aim to boost credit to priority sectors, support technological innovation, industrial upgrading, and carbon-reduction projects, while expanding eligibility for small and midsize private enterprises. Officials also signalled further easing potential, including lower reserve requirements and reduced mortgage down-payment ratios to ease property-sector pressure.

Financial markets and precious metals

UBS plans to issue about 7 billion yuan ($1 billion) in panda bonds to fund its expanding operations in China and broader Asia-Pacific business, taking advantage of lower borrowing costs and favourable market conditions. The move follows a strong 2025 performance in China, where revenue rose over 40% and pretax profit more than doubled, and reflects UBS’s growing commitment to the mainland market. The bank joins other foreign institutions tapping China’s yuan-denominated bond market amid increasing interest in currency diversification.

Apple has ended its decade-long exclusivity with China UnionPay, allowing mainland Apple Pay users to make overseas payments via Visa cards. The service currently supports Visa credit and debit cards from several major Chinese banks, with more expected to join, reflecting Apple’s strategic shift toward cross-border transactions amid limited growth in China’s QR code-dominated payments market. Mastercard is also preparing similar support, signalling increased competition in overseas spending by Chinese consumers.

On January 22, 2026, the Shanghai Futures Exchange has raised margin requirements and widen daily price limits for gold, silver, copper, and aluminium futures to curb risk amid a sharp rally in precious metals. Silver has seen particularly intense speculation, with near-term contracts now carrying a 17% daily price limit and 19% margin requirement, while gold, copper, and aluminium limits and margins have also been tightened.

Hong Kong is expanding its gold storage capacity to over 2,000 tons and launching a central clearing platform in partnership with the Shanghai Gold Exchange to strengthen its role as a global commodities hub. The new infrastructure will facilitate cross-border gold trading, integrate with mainland China’s financial system, and support growing investor demand amid record-high gold prices. The city is also introducing gold-backed ETFs and upgrading physical storage facilities to attract international participation.

Goldman Sachs projects Chinese equities will attract 3.6 trillion yuan ($518 billion) of domestic capital in 2026, driven by rising corporate earnings and led by retail investors and insurers. The bank maintains an overweight stance on Chinese stocks amid cautious broader sentiment, while noting foreign inflows remain uncertain. Despite property sector headwinds, Goldman expects GDP growth of 4.8%, supported by policy measures and strong exports.