Hong Kong

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.

5 November 2021

Hong Kong GDP (Q3 Preliminary)

Hong Kong’s economy largely treaded water last quarter, with weaker exports and investment meaning the rebound from Q2’s downturn was much more tepid than expected. The pace of recovery is likely to remain muted in the near-term but should pick up again once mainland tourists return.

1 November 2021

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.

29 October 2021
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Energy shortages starting to ease

Despite a flurry of media reports in September hinting at widespread disruption, the data suggest that China’s recent power shortages have not been too severe. Electricity output actually rose 0.6% in seasonally-adjusted m/m terms last month, the fastest pace this year. But even with this ramp up in electricity generation, power plants were clearly struggling to keep up with rising demand amid dwindling thermal coal inventories, forcing them to ration power to some users. The good news is that the situation has been improving in recent weeks. Stockpiles of coal at power plants have started to rise again. So have inventories at Chinese ports. And in a sign that power rationing is probably easing, domestic output prices in the parts of industry hardest hit by the shortages, such as cement and chemicals, appear to be levelling off. While this may partly reflect a ramp up in coal production and imports, a slowdown in final demand for industrial goods, especially from the construction sector, is probably helping too.

Downturn setting in

The economy slowed sharply in Q3. Weakness in services is already reversing as virus controls have been relaxed again. But industry and construction are on the cusp of a deeper downturn that could pull down China’s growth to just 3% next year.

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.

External strains unlikely to ease as tourism slump drags on

Countries across Emerging Asia are making renewed efforts to reopen their borders to boost flagging tourism sectors. However, ongoing travel restrictions and the spread of the more infectious Delta variant mean that tourism will continue to struggle. This will hold back recoveries in places such as Thailand and Malaysia and lead to further balance of payments strains in Sri Lanka.

Party soon to target property and healthcare costs

A WeChat post by a prominent blogger voicing support for Xi Jinping’s “common prosperity” campaign has been widely re-published by state media, giving it a rare seal of Party approval. The post argues that the recent regulatory crackdown is just the start of a “profound revolution” prioritising workers over capitalists. If the author is to be believed, the next areas to be addressed will be high housing and medical costs. Education, housing and healthcare are often referred to as the “three mountains” that Chinese households must climb to achieve a comfortable life but the costs of each have soared. The government has pledged before to keep prices in check, but its efforts now appear set to intensify. Public housing and healthcare is likely to be expanded while private medical providers and real estate developers could soon face greater constraints on their ability to set prices and pursue profits.

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