Still strong but probably close to a cyclical peak

Our China Activity Proxy (CAP) suggests that output remained strong in May but didn’t rise much further,  with slowing credit growth weighing on construction and China’s pandemic-induced export boom showing signs of peaking. We think output will, at best, tread water during the second half of this year.
Continue reading

More from 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

More from China Economics Team

China Economics Weekly

PBOC is right to be relaxed about inflation

Producer prices are rising rapidly as the extraordinary surge in global demand for consumer durables during the pandemic has led to bottlenecks in supply. But the People’s Bank is right to not be too concerned about the implications for domestic inflation. There are no signs of broader price pressures or overheating in the labour market, for example. And export demand is unlikely to remain this strong indefinitely.

14 May 2021

China Chart Book

Jump in input costs weighing on industry

The Q1 industrial profits data published this week were very strong. Net profits continued rise rapidly and are now 50% higher than they were two years ago. Only a third of this is due to higher sales. Instead, the bulk of the increase has come from fatter net margins, which hit a record high last quarter. The picture isn’t quite as bright when looking at gross margins, however, which have begun to drop back due to a jump in input costs. (See Chart 1.) So far, the impact on net profits has been more than made up for by savings elsewhere, including lower taxes and administrative expenses. But this offset is likely to be temporary, with the drag on profits from higher input prices becoming more visible before long. Officials are already concerned, with Premier Li this month calling for stricter regulation of raw material prices.

30 April 2021

China Economics Weekly

Population pressures, supply constraints biting

There is mounting evidence that supply constraints are feeding price pressures across manufacturing in China. Producer price inflation is about to jump to multi-year highs. Meanwhile, the statistics bureau responded yesterday to a report that China’s population contracted last year by saying that “according to our understanding” it didn’t. That hasn’t quashed speculation that the census has revealed that demographic headwinds are building earlier than previously thought.

30 April 2021
↑ Back to top