China

China Economics Update

PBOC takes a bigger bite of the easing apple

The People’s Bank (PBOC) has stepped up its efforts to loosen monetary conditions, following up last month’s reduction to the Loan Prime Rate (LPR) with cuts to the rates at which it lends to banks. Another LPR cut this month is now a given and we expect additional easing measures further ahead.

17 January 2022

China Data Response

China GDP (Q4), Activity & Spending (Dec.)

Official GDP growth beat expectations last quarter and in q/q terms was the strongest since late 2020. But we are sceptical that this reflects the reality on the ground – our China Activity Proxy suggests output was largely stagnant last quarter. With the property sector still struggling and virus disruptions becoming more frequent, economic momentum is likely to remain weak throughout much of this year.

17 January 2022

China Economics Weekly

Omicron arrives

It is too soon to conclude that Omicron will swamp China’s efforts to suppress COVID. But the policy of “dynamic clearing” is facing a severe test. Data due over the coming week will reveal the economic strain that it is causing.

14 January 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q annualised (%y/y), unless stated

Latest

Q4 2021

Q1 2022

Q2 2022

Q3 2022

2020

2021f

2022f

2023f

Official GDP

(+4.9)*

(+3.1)

(+4.8)

(+4.7)

(+5.6)

(+2.2)

(+7.8)

(+5.0)

(+5.0)

GDP (CE CAP-derived estimates)

(+0.5)*

(-0.5)

(+0.3)

(-1.2)

(+6.1)

(+0.2)

(+8.5)

(+3.5)

(+3.5)

Consumer Prices

(+1.4)**

(+2.3)

(+1.7)

(+1.4)

(+1.6)

(+2.5)

(+0.9)

(+1.5)

(+1.5)

Producer Prices

(+10.3)**

(+12.2)

(+8.0)

(+3.4)

(+0.5)

(-1.8)

(+8.1)

(+2.0)

(-2.0)

Broad Credit (AFRE)

(+10.3)**

(+10.3)

(+10.4)

(+10.7)

(+11.0)

(+13.3)

(+10.3)

(+11.0)

(+10.0)

Exports (US$)

(+20.9)**

(+23.1)

(+3.5)

(-2.0)

(-4.5)

(+3.6)

(+29.9)

(-3.5)

(-1.5)

Imports (US$)

(+19.5)**

(+23.9)

(+19.5)

(0.0)

(-11.0)

(-1.1)

(+30.1)

(-1.5)

(-2.5)

RMB/$

6.36

6.36

6.45

6.55

6.65

6.54

6.36

6.70

6.90

7-day PBOC reverse repo %

2.20

2.20

2.10

2.00

1.90

2.20

2.20

1.90

1.90

1-year Loan Prime Rate (LPR) %

3.80

3.80

3.70

3.60

3.50

3.85

3.80

3.50

3.50

1-year MLF Rate %

2.95

2.95

2.85

2.75

2.65

2.95

2.95

2.65

2.65

10-year Government Bond Yield %

2.79

2.78

2.70

2.60

2.60

3.20

2.78

2.60

2.50

RRR (major banks) %

11.5

11.5

11.0

10.5

10.5

12.5

11.5

10.5

10.5

CSI 300 Index

4,738

6,061

4,898

4,915

4,933

5,211

6,061

4,950

5,000

Hong Kong GDP

(+5.4)*

(+5.8)

(+1.8)

(+3.7)

(+4.6)

(-6.1)

(+6.5)

(+3.5)

(+3.5)

Hang Seng Index

24,207

23,398

27,063

27,125

27,188

27,231

23,398

27,250

27,550

Sources: Bloomberg, CEIC, Capital Economics *Q3; **Dec.; End of period


Omicron arrives

China Economics Weekly

19 January 2022

Our view

2022 will be a year of slower growth in China as the property and export sectors weaken and structural constraints loom larger. A desire to keep a grip on credit risks will inhibit the policy response to the slowdown. Xi Jinping’s decision not to step aside when his second term as Party leader ends will cement China’s shift to a more autocratic style of policymaking, with productivity growth likely to decelerate further as a result. And 2022 may be the year in which China’s population starts to go into decline.

Latest Outlook

China Economic Outlook

Downturn setting in

The economy slowed sharply in Q3. Weakness in services is already reversing as virus controls have been relaxed again. But industry and construction are on the cusp of a deeper downturn that could pull down China’s growth to just 3% next year.

26 October 2021