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New growth forecasts, service sector divergence

We’ve nudged down our China growth forecast for 2021 in response to incoming data suggesting that momentum slowed more than we’d expected in the early part of this year. Our expectations for the rest of the year haven’t changed: the policy tightening that’s already happened and weaker export demand will result in tepid quarterly growth so that the economy ends this year back close to its pre-virus trend. A point worth noting from the detailed GDP breakdown is the significant role the tech sector has started to play in overall growth. A key unknown is the extent to which the crackdown on the sector could undermine this growth engine.
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China Economics Weekly

How quickly can activity rebound?

China’s previous COVID outbreaks offer a few clues to how quickly the economy will rebound this time. Even if further large-scale lockdowns are avoided, activity is unlikely to have recovered in full until near the end of the year, with the service sector slower to get back on its feet than industry.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

China Economics Update

A helping hand for the housing market

Today’s reduction to the five-year Loan Prime Rate (LPR) should help drive a revival in housing sales, which have gone from bad to worse recently. But the lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted and that we shouldn’t expect large-scale stimulus of the kind that we saw in 2020.

20 May 2022

China Data Response

China Activity & Spending (Apr.)

The April data were even weaker than expected and are consistent with a sharp contraction in economic activity. Provided that the virus situation continues to improve, the economy should begin to rebound this month. But the recovery is likely to be tepid.

16 May 2022

More from China Economics Team

China Activity Monitor

Still strong but probably close to a cyclical peak

Our China Activity Proxy (CAP) suggests that output remained strong in May but didn’t rise much further,  with slowing credit growth weighing on construction and China’s pandemic-induced export boom showing signs of peaking. We think output will, at best, tread water during the second half of this year.

23 June 2021

China Economics Weekly

PBOC is right to be relaxed about inflation

Producer prices are rising rapidly as the extraordinary surge in global demand for consumer durables during the pandemic has led to bottlenecks in supply. But the People’s Bank is right to not be too concerned about the implications for domestic inflation. There are no signs of broader price pressures or overheating in the labour market, for example. And export demand is unlikely to remain this strong indefinitely.

14 May 2021

China Chart Book

Jump in input costs weighing on industry

The Q1 industrial profits data published this week were very strong. Net profits continued rise rapidly and are now 50% higher than they were two years ago. Only a third of this is due to higher sales. Instead, the bulk of the increase has come from fatter net margins, which hit a record high last quarter. The picture isn’t quite as bright when looking at gross margins, however, which have begun to drop back due to a jump in input costs. (See Chart 1.) So far, the impact on net profits has been more than made up for by savings elsewhere, including lower taxes and administrative expenses. But this offset is likely to be temporary, with the drag on profits from higher input prices becoming more visible before long. Officials are already concerned, with Premier Li this month calling for stricter regulation of raw material prices.

30 April 2021
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