Downturn pushing China towards zero lower bound

The decline in China’s Q1 GDP made history but was not a big surprise. The pace of contraction looks set to ease this quarter but with external headwinds intensifying and the labour market in a precarious state, year-on-year GDP growth will probably remain in negative territory. In response to the ongoing weakness, the PBOC has pushed down interbank rates, which we think could hit the zero lower bound (ZLB) before long. But unlike central banks elsewhere, hitting the ZLB may not trigger major changes to the PBOC’s policy framework.
Julian Evans-Pritchard Senior China Economist
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China Data Response

China Caixin Manufacturing PMI (Nov.)

The Caixin manufacturing index published today slipped under 50 last month on the back of softer domestic demand. This contrasts with the official survey released yesterday. Taken together, the surveys still suggest that industrial output rebounded in November as power shortages abated. And they also point to easing factory-gate price pressures. Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

1 December 2021

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

More from Julian Evans-Pritchard

China Data Response

China Caixin Manufacturing PMI (May)

Unlike the official PMI survey released yesterday, the Caixin manufacturing index published today rose last month. The key takeaway is that while output edged up on the back of still strong demand, supply shortages remain a headwind, leading to a rundown in inventories and higher prices.

1 June 2021

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.

31 May 2021

China Data Response

China Official PMIs (May)

The latest surveys suggest that stronger construction activity nudged up overall growth this month and that supply shortages are pushing up prices even as final demand for manufactured goods appears to be levelling off.

31 May 2021
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