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.
Mark Williams Chief Asia Economist
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China Data Response

China Official PMIs (Nov.)

The official PMIs suggest that industrial activity rebounded this month thanks to easing disruptions from power shortages while a renewed virus flare-up held back the recovery in services. And while we know little about its transmissibility and severity, the new Omicron variant could hold back a further economic recovery. On a more positive note, the surveys point to easing price pressures.

30 November 2021

China Chart Book

Omicron tests China’s zero-COVID strategy

The global spread of a more transmissible COVID variant is a particular challenge for a country trying to remain COVID-free. But after nearly two years of success suppressing infections domestically, the bar to changing course before better medical treatments or vaccines are available is high. A study published last week by the Chinese Center for Disease Control and Prevention estimated that if China were to adopt the pandemic control measures recently in place in several Western countries, it would soon be facing several hundred thousand new cases per day and 10-20,000 severe cases. These estimates were deliberately conservative, made on the assumption that natural and vaccine-derived immunity is as high in China as in the comparator countries. The actual health cost, the authors argue, would almost certainly be higher. Given these concerns, if Omicron proves harder to contain than Delta, we would expect officials to tighten containment measures in response. Economically, that would lead to further intermittent disruption to domestic activity, particularly services, and to global supply chains.

29 November 2021

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

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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.

15 September 2021

China Economics Weekly

Regulatory crackdown or ideological campaign?

What looked like a tech crackdown, broadened to a crackdown on large private firms, then to a wider regulatory push. This week it started to resemble a society-wide ideological campaign aimed at fortifying the nation’s people and economy. K-Pop fandoms are out. Xi Jinping Thought is in. Meanwhile, there’s growing talk that property tax plans are being revived.

3 September 2021

China Economics Weekly

Delta wave may have peaked but it won’t be the last

Aggressive containment measures, mass testing and quarantine appear already to be bringing China’s Delta outbreak under control. The economic cost should be fleeting – but it will be felt beyond China’s shores due to the closure of another major port terminal. And it won’t be the last bout of disruption. Meanwhile, the People’s Bank is likely to deliver a policy signal early next week in the form of an MLF operation.

13 August 2021
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