China

China Economics Update

China Economics Update

A property tax could make up for fewer land sales

Local governments in China are far less reliant on land sales as a source of revenue than is often claimed. While slowing real estate development will create a funding gap, it could be more than offset with a modest property tax.

5 October 2021

China Economics Update

Power rationing adds to mounting headwinds

China’s power shortages are a reflection of the global strain in energy markets and won’t be resolved overnight. Power rationing will constrain industrial activity until demand weakens enough to bring the domestic electricity market back into equilibrium.

29 September 2021

China Economics Update

The curious case of the super-stable renminbi

We think that the renminbi’s period of remarkable calm will end before long, and that it will depreciate against the US dollar over the next few months. In view of the wider interest, we are also sending this FX Markets Update to clients of our China service.

24 September 2021
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China Economics Update

Most developers are not on the brink of default

With a couple of exceptions, most major developers are in a much stronger financial position than Evergrande and should be able to weather a temporary spike in their borrowing costs amid contagion fears. Successfully navigating the structural decline in housing demand over the coming decade will prove more challenging. A drawn-out consolidation of the sector over many years seems more likely than an imminent wave of developer failures.

Drop-In: Evergrande – What are the risks to China and the world? Chief Asia Economist Mark Williams and Senior China Economist Julian Evans-Pritchard will be joined by Senior Markets Economist Oliver Jones to take your questions about the Evergrande situation. They’ll be covering the implications of collapse for China’s financial system and growth outlook, and assessing the global markets fallout. Register here for the 0900 BST/1600 HKT session on Thursday, 23rd September.

China Economics Update

Where might markets be wrong about Evergrande?

If Evergrande were to cause a financial or economic shock it would either be because policymakers failed to contain financial contagion or because the company’s collapse precipitated a much bigger decline in construction activity than most investors currently expect. The latter is probably the bigger risk and hinges on whether the company’s demise triggers a substantial drop in property sales.

China Economics Update

LPR cuts appear imminent

Commercial banks left the Loan Prime Rate (LPR) on hold for a 17th consecutive month today. But with the economy losing steam and concerns around the property sector growing, we think policy rate cuts by the PBOC could come as soon as next month.

China Economics Update

Property crunch will be followed by lasting decline

The root of Evergrande’s troubles – and those of other highly-leveraged developers – is that residential property demand in China is entering an era of sustained decline. Relaxation of regulatory controls on the sector wouldn’t change this fundamental constraint. Construction, a key engine of China’s growth and commodity demand, will slow substantially over the next few years, whether or not the economy escapes the current crunch unscathed.

China Economics Update

Evergrande circling the plughole

Evergrande’s collapse would be the biggest test that China’s financial system has faced in years. Policymakers’ main priority would be the households that have handed over deposits for properties that haven’t yet been finished. The company’s other creditors would suffer. Markets don’t seem concerned about the potential for financial contagion at the moment. That would change in the event of large-scale default, though the PBOC would step in with liquidity support if fears intensified.

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