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 Data Response

China PMIs (Jul.)

The latest surveys suggest that the pace of growth slowed more than expected last month. Supply bottlenecks remain a constraint. But the PMIs suggest demand is cooling too, taking the heat out of price gains and weighing on activity in industry and construction. China slowdown webinar: Join us on Thursday, 5th August for a special webinar assessing the impact of China’s economic slowdown on the global recovery. Neil Shearing will lead a discussion with economists from across our economics and markets services to assess whether investors should brace for fresh volatility with China poised for a structural deceleration. Register here for sessions at 0900 BST/1600 HKT or 1100 ET/1600 BST.

2 August 2021

China Economics Weekly

Delta putting zero-COVID approach under strain

China’s ability to quash COVID flare-ups is being tested again:  the Delta variant outbreak that was identified in Nanjing last week has already spread further within China than any since the first that emerged from Wuhan. But the bigger challenge it poses is to China’s long-term strategy of keeping COVID infections as close to zero as possible.

30 July 2021

China Data Response

Hong Kong GDP (Q2 Preliminary)

Hong Kong’s economy contracted last quarter as exports moderated after an exceptional Q1. The path of output is likely to remain subdued until Hong Kong’s borders reopen.

30 July 2021

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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