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Omicron arrives

It is too soon to conclude that Omicron will swamp China’s efforts to suppress COVID. But the policy of “dynamic clearing” is facing a severe test. Data due over the coming week will reveal the economic strain that it is causing.
Mark Williams Chief Asia Economist
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China Economics Update

Policy easing stepping up

The State Council has announced support measures totalling 1.7% of GDP. Most of this comprises incentives for banks to lend to struggling firms, rather than fiscal stimulus. The People’s Bank has also made a call for “all-out” efforts to boost lending, so this does constitute a meaningful policy shift. But the measures that have been detailed so far still fall some way short of what was implemented in 2020. 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.

24 May 2022

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

More from Mark Williams

China Economics Update

What to expect in China in 2022

2022 will be a year of slower growth in China as the property and export sectors weaken and structural constraints loom larger. A desire to keep a grip on credit risks will inhibit the policy response to the slowdown. Xi Jinping’s decision not to step aside when his second term as Party leader ends will cement China’s shift to a more autocratic style of policymaking, with productivity growth likely to decelerate further as a result. And 2022 may be the year in which China’s population starts to go into decline.

5 January 2022

China Chart Book

The People’s Bank is not pleased

The People’s Bank purchased nearly $6bn in foreign exchange last month, by our estimate. That’s not much in the context of China’s cross-border trade and investment flows. But it was the biggest purchase in six years. Then, earlier this month, while cutting the reserve requirement applied to renminbi-denominated deposits, the PBOC raised the reserve requirement for foreign currency accounts. That is likely to have prompted a transfer of close to $20bn in foreign exchange from commercial banks to the central bank. Both moves are overt signals that the PBOC is unhappy with the strength of the renminbi. In recent years, the PBOC has hidden its interventions: the breakdown of the previously-tight relationship between banking system net FX settlement and PBOC net FX purchases suggests that some other entity was intervening on the PBOC’s behalf. Now though, the PBOC appears to want its efforts to stem the renminbi’s strength to be known. We think it will get its way, and expect the renminbi to weaken from 6.37/$ now to 6.90/$ at the end of next year.

22 December 2021

China Activity Monitor

Virus disruption compounding property strains

China’s economy started 2021 above its pre-pandemic path of output, thanks to stimulus and surging global export demand. Our China Activity Proxy (CAP) suggests that the economy is ending the year well below the pre-pandemic path as a boom in construction activity has gone into reverse and small but recurrent COVID outbreaks continue to depress service sector activity. These headwinds will continue into 2022.

20 December 2021
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