China Chart Book

China Chart Book

Energy shortages starting to ease

Despite a flurry of media reports in September hinting at widespread disruption, the data suggest that China’s recent power shortages have not been too severe. Electricity output actually rose 0.6% in seasonally-adjusted m/m terms last month, the fastest pace this year. But even with this ramp up in electricity generation, power plants were clearly struggling to keep up with rising demand amid dwindling thermal coal inventories, forcing them to ration power to some users. The good news is that the situation has been improving in recent weeks. Stockpiles of coal at power plants have started to rise again. So have inventories at Chinese ports. And in a sign that power rationing is probably easing, domestic output prices in the parts of industry hardest hit by the shortages, such as cement and chemicals, appear to be levelling off. While this may partly reflect a ramp up in coal production and imports, a slowdown in final demand for industrial goods, especially from the construction sector, is probably helping too.

29 October 2021

China Chart Book

Power shortages another blow to global supply chains

We still don’t have enough data to judge the extent of the disruption to China’s factory output from power rationing with much certainty. But with supply chains already stretched, even a modest hit to output, which producers downstream might normally cover by dipping into inventories, could affect firms’ ability to meet orders. It’s therefore concerning that the number of ships idling outside Chinese ports has jumped again in recent weeks. The initial catalyst for the spike was short-lived disruption to port operations from Typhoon Chanthu which hit China’s east coast on 12th But port congestion remaining very elevated more than two weeks later may be a sign that power rationing along the supply chain is interfering with ports’ ability to ship orders. Disruption is likely to worsen in the short-run given that the current shortage of thermal coal needed to meet power demand won’t be resolved overnight.

30 September 2021

China Chart Book

Party soon to target property and healthcare costs

A WeChat post by a prominent blogger voicing support for Xi Jinping’s “common prosperity” campaign has been widely re-published by state media, giving it a rare seal of Party approval. The post argues that the recent regulatory crackdown is just the start of a “profound revolution” prioritising workers over capitalists. If the author is to be believed, the next areas to be addressed will be high housing and medical costs. Education, housing and healthcare are often referred to as the “three mountains” that Chinese households must climb to achieve a comfortable life but the costs of each have soared. The government has pledged before to keep prices in check, but its efforts now appear set to intensify. Public housing and healthcare is likely to be expanded while private medical providers and real estate developers could soon face greater constraints on their ability to set prices and pursue profits.

31 August 2021
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China Chart Book

Investors refocus on long-term concerns

Questions about the strength of China’s post-lockdown rebound have become louder since the People’s Bank cut the required reserve ratio three weeks ago. But the trigger for this week’s sharp equity market sell-off was instead growing disquiet about the leadership’s commitment to open and free capital markets. The MSCI China index is now discounted relative to developed market equities to a degree that has not been seen since 2014/15, with the exception of a brief spell last year. Officials insist that it is only the private education sector that they want to crush but, even if investors accept that, the episode brings into focus the political risk associated with investing in China and it underlines the leadership’s ambivalence towards markets. We think this will take a toll on economic growth over the medium term. And we expect it to weigh further on equities too.

China Chart Book

No, China isn’t exporting inflation

Some believe that China is adding to global inflationary pressure. The opposite is closer to the truth: the large increase in China’s trade surplus over the past year signals that supply from China has risen far more than demand. Global consumer goods prices are rising in spite of China, not because of it. Admittedly, China’s rapid, investment-intensive recovery has been an important factor in the rise in global commodity prices over the past year – this is the key reason why China’s producer price inflation hit a 12-year high last month. But China’s contribution to the surge in global demand for consumer durables has been relatively small – unlike in many major economies, retail spending on goods in China is not particularly strong. And while dollar prices of goods from China have risen over the past year, these price hikes have generally failed to keep up with the pace of renminbi appreciation. In renminbi terms, export prices have been falling unusually fast.

China Chart Book

The three-child policy: too little, too late

State media announced today that China’s family planning policy will be relaxed to allow all families to have three children, up from the current limit of two. This comes shortly after China’s once-a-decade census showed that its population is aging even faster than previously expected. The policy shift will do little to alter the downward trend in births, however. It is largely economic and social trends, rather than family planning policy, that are behind the decline in China’s fertility rate in recent decades, much of which predates the one-child policy. With small family sizes now well ingrained into the fabric of Chinese society, there is little that policymakers can do to turn back the clock. The relaxation and eventual abolishment of the one-child policy around the middle of the last decade only nudged up the fertility rate marginally, with the impact on aggregate births quickly overwhelmed by a sharp decline in the number of women of childbearing age. Raising the cap from two children to three will move the needle even less.

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 Chart Book

Vaccination steps up a gear

China’s vaccination campaign has accelerated sharply over the past week. The daily pace of vaccination is now only just short of the five million needed to hit the target of inoculating 40% of the population by the end of June. The authorities are starting to share more regular information on the progress of the campaign too, which points to greater confidence that the target will be met. While China is still a long way behind the global leaders and even the euro-zone on a per capita basis, at this rate China’s vaccination campaign will soon be one of the more advanced in the emerging world.

1 April 2021
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