China Economics Weekly

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 Economics Weekly

Outbreak quashed, land auction rules eased

Local authorities in China appear to be becoming more adept at bringing Covid outbreaks under control with relatively little disruption to economic activity. Meanwhile, this week’s easing of land auction rules is the latest in a series of moves to support China’s struggling property sector. We think home sales are on the cusp of a rebound. But it will take much longer for developers to start ramping up construction again.

19 November 2021

China Economics Weekly

Policymakers are stressing developers not markets

This week’s sell-off in Chinese high-yield dollar bonds is not a good measure of the stress facing Chinese developers. These bonds account for less than a tenth of developer debt. Their key creditors are domestic banks. Whether developers can refinance their debt therefore depends primarily not on conditions in the offshore market but on the political and regulatory constraints on bank lending.

12 November 2021
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China Economics Weekly

Outbreak threatens growth, food panic overdone

Our downbeat growth forecasts are largely based on expectations for a deepening downturn in construction and industry. But a worsening COVID-19 outbreak means the biggest near-term threat could be a renewed slump in services activity. And while there is a grain of truth in talk of food shortages in China, the big picture is that the country is not suffering from as much supply-side pressure on consumer prices as elsewhere.

China Economics Weekly

Renminbi’s strength carries echoes of 2015

The renminbi has risen 10% in trade-weighted terms since the middle of last year, reaching its strongest level in over five years this week. The last time we witnessed such rapid gains, they culminated in an abrupt reversal in the summer of 2015. While the current backdrop is not identical, there are some important similarities including a construction downturn, an unsustainable rise in the trade surplus and a divergent policy outlook compared to the US.

China Economics Weekly

Policy outlook, new forecasts, property tax

Ahead of the publication of our quarterly China Economics Outlook next week, we consider how Evergrande's woes, power cuts and supply shortages have shifted prospects for the economy. Our answer: surprisingly little, but perhaps only because only our expectations for 2022 were already fairly gloomy. There has been growing talk this week that the People’s Bank won’t lower policy rates in the coming months. We’re not convinced.

China Economics Weekly

Property downturn deepens, triggering easing

Supply-side disruptions mean there is an unusual amount of uncertainty about China’s recent economic performance. But one thing that’s clear is that the property sector downturn has gathered pace in recent weeks. Policymakers have responded by allowing banks to step up mortgage lending. Other easing measures are likely to follow, including rate cuts. But limits on developer financing are here to stay.

China Economics Weekly

Power cuts and inflation, zero-COVID hobbling tourism

The coming week may shine a light on the global impact of China’s power shortages. There are reports of them triggering sharp falls in shipping costs. The producer price data on Thursday will show whether they are yet affecting the prices of consumer durables. Meanwhile, the National Day holiday was a disappointing one for many in the tourism sector. There’s unlikely to be any major improvement as long as China’s goal remains zero-COVID.

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