China

China Economics Weekly

Property downturn deepens, triggering easing

Supply-side disruptions mean there is an unusual amount of uncertainty about China’s recent economic performance. But one thing that’s clear is that the property sector downturn has gathered pace in recent weeks. Policymakers have responded by allowing banks to step up mortgage lending. Other easing measures are likely to follow, including rate cuts. But limits on developer financing are here to stay.

15 October 2021

China Data Response

China Consumer & Producer Prices (Sep.)

Producer price inflation reached a new high last month due to the surge in global coal prices. There are few signs that this is feeding through to higher output prices of consumer goods, however. The overall inflation outlook remains benign, with PPI inflation likely to drop back around the turn of the year and CPI inflation set to remain muted for the foreseeable future.

14 October 2021

China Data Response

China Bank Lending & Broad Credit (Sep.)

Broad credit growth continued to slide in September and is now at its slowest pace since December 2005. We think credit growth will level off in the coming quarters, as PBOC policy turns more supportive in response to strains in the property sector. But the usual lags mean that tight credit conditions will remain a headwind to economic activity for a while.

13 October 2021

Key Forecasts

Main Economic & Market Forecasts

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

Latest

Q3 2021

Q4 2021

Q1 2022

Q2 2022

2020

2021f

2022f

2023f

Official GDP

(+7.9)*

(+4.8)

(+3.5)

(+5.2)

(+5.3)

(+2.3)

(+8.0)

(+5.7)

(+5.5)

GDP (CE CAP-derived estimates)

(+14.1)*

(+4.5)

(+0.6)

(+1.1)

(+0.6)

(+0.1)

(+10.0)

(+3.0)

(+4.0)

Consumer Prices

(+0.7)**

(+1.6)

(+1.4)

(+1.4)

(+1.0)

(+2.5)

(+1.0)

(+1.5)

(+1.5)

Producer Prices

(+10.5)**

(+7.1)

(+5.5)

(+2.0)

(-1.8)

(-1.8)

(+5.5)

(-0.5)

(-1.0)

Broad Credit (AFRE)

(+10.0)**

(+10.2)

(+10.0)

(+10.0)

(+10.0)

(+13.3)

(+10.0)

(+10.0)

(+9.5)

Exports (US$)

(+28.1)**

(+19.0)

(+6.0)

(-4.0)

(-9.5)

(+3.6)

(+23.5)

(-6.0)

(+0.5)

Imports (US$)

(+17.6)**

(+17.5)

(+9.5)

(+15.0)

(-3.5)

(-1.1)

(+23.5)

(-2.0)

(-2.0)

RMB/$

6.44

6.44

6.70

6.75

6.80

6.54

6.70

6.90

6.70

7-day PBOC reverse repo %

2.20

2.20

2.10

2.00

1.90

2.20

2.10

1.90

1.90

1-year Loan Prime Rate (LPR) %

3.85

3.85

3.75

3.65

3.55

3.85

3.75

3.55

3.55

1-year MLF Rate %

2.95

2.95

2.85

2.75

2.65

2.95

2.85

2.65

2.65

10-year Government Bond Yield %

2.96

2.88

2.80

2.70

2.60

3.20

2.80

2.50

2.40

RRR (major banks) %

12.0

12.0

11.5

11.0

10.5

12.5

11.5

10.5

10.5

CSI 300 Index

4,914

4,866

4,800

4,813

4,825

5,211

4,800

4,850

4,900

Hong Kong GDP

(+7.5)*

(+5.3)

(+7.5)

(+0.7)

(+6.6)

(-6.1)

(+7.0)

(+5.5)

(+4.5)

Hang Seng Index

25,187

24,576

25,250

25,313

25,375

27,231

25,250

25,500

25,600

Sources: Bloomberg, CEIC, Capital Economics *Q2; **Sep.; End of period


Property downturn deepens, triggering easing

China Economics Weekly

17 October 2021

Our view

We’re not overly worried about the risk of financial contagion from Evergrande’s collapse but our forecasts have long assumed that a slowdown in property construction would drag on the economy in the second half of this year and the risks of a much sharper downturn have only grown. Policymakers won’t relax the controls on developer financing and, unless there’s a sharp slowdown, won’t step back from the campaign to rein in credit growth either. The result will be a further slowdown that runs into 2022. Meanwhile, the leadership increasingly appears to be embarking on an ideological campaign to fortify the nation in preparation for struggles ahead. It’s clearer than ever that economic efficiency is not a priority: most medium-term growth projections still look far too rosy.

Latest Outlook

China Economic Outlook

Coming down to earth

China’s economy has been defying gravity thanks to elevated global demand but this support may now be fading. Meanwhile, last year’s policy easing has been fully reversed. An abrupt slowdown is not likely to follow, but highly-indebted firms, including many property developers, will come under increasing strain.

23 July 2021