A year of two halves

China’s economy will continue to beat most expectations in the near term, as households spend more freely. But momentum will soften during the second half of the year as props from stimulus and exports fade.
Julian Evans-Pritchard Senior China Economist
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China Economics Weekly

Capacity constraints put a ceiling on export outlook

In the long-run, the global spread of highly-transmissible coronavirus strains may make China’s zero-COVID stance untenable but the immediate response to concerns about B.1.1.529  is more likely to be a doubling down on the strategy, with rolling local lockdowns in response to any local cases and continued tight border controls. China’s exporters could benefit from another wave of lockdown-induced demand elsewhere in the world. But capacity limits, particularly at ports, potentially exacerbated by further port shutdowns, may limit their ability to meet orders.

26 November 2021

China Activity Monitor

Service sector recovery remains lacklustre

Our China Activity Proxy (CAP) shows that growth ticked up last month as energy shortages eased and the service sector continued to recover from virus disruptions over the summer. But the rebound remains lacklustre, with output still well below June’s peak. And while the outlook for home sales and exports has brightened in recent weeks, cooling construction activity still looks set to weigh on growth next year.

24 November 2021

China Economics Update

LPR on hold but wider easing already underway

The Loan Prime Rate (LPR) remained unchanged for the 19th consecutive month today. But officials are already easing policy in other ways, such as by relaxing constraints on mortgage lending. The PBOC has also pushed down bank funding costs via recent deposit rate reforms and July’s RRR cut, paving the way for future moves to nudge down lending rates using LPR cuts.

22 November 2021

More from Julian Evans-Pritchard

Long Run Update

Employment already declining at pace

Revisions to the historic data following the recent census show that China’s population barely grew last year and that employment is already contracting faster than previously understood, having peaked in 2014 rather than 2017. The silver-lining, however, is that the new data suggest that productivity growth has slowed by less and that there is greater scope to counter demographic headwinds by boosting participation rates over the coming decades.

1 July 2021

China Data Response

China Caixin Manufacturing PMI (Jun.)

The Caixin manufacturing index published today dropped back last month and adds to signs from the official PMI released yesterday that momentum in industry is waning. The surveys point to a levelling off in demand and easing of price pressures, even as supply shortages continue to constrain output.

1 July 2021

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.

30 June 2021
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