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.
Julian Evans-Pritchard Senior China Economist
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China Economics Weekly

Property sector leverage, China’s CPTPP bid

Evergrande is the poster child for the excesses of China’s property sector, and its short-term liabilities are particularly high. But the sector is full of similarly-leveraged peers. Indeed, nearly all of the huge expansion in the leverage of listed Chinese firms since the Global Financial Crisis was driven by property developers. Meanwhile, Australia’s new security pact with the US and UK underlines how unlikely it is that China’s bid this week to join the CPTPP will succeed.

17 September 2021

China Economics Focus

Mapping decoupling

China and countries that align more closely with it than with the US together account for around half of the world’s population. But the China bloc is far smaller economically than the US bloc and far more dependent on the rival bloc as a source both of imports and of export demand. Our decoupling map illustrates the economic challenge that division from the West would pose for China.

17 September 2021

China Economics Update

Property crunch will be followed by lasting decline

The root of Evergrande’s troubles – and those of other highly-leveraged developers – is that residential property demand in China is entering an era of sustained decline. Relaxation of regulatory controls on the sector wouldn’t change this fundamental constraint. Construction, a key engine of China’s growth and commodity demand, will slow substantially over the next few years, whether or not the economy escapes the current crunch unscathed.

15 September 2021

More from Julian Evans-Pritchard

China Chart Book

Investors refocus on long-term concerns

Questions about the strength of China’s post-lockdown rebound have become louder since the People’s Bank cut the required reserve ratio three weeks ago. But the trigger for this week’s sharp equity market sell-off was instead growing disquiet about the leadership’s commitment to open and free capital markets. The MSCI China index is now discounted relative to developed market equities to a degree that has not been seen since 2014/15, with the exception of a brief spell last year. Officials insist that it is only the private education sector that they want to crush but, even if investors accept that, the episode brings into focus the political risk associated with investing in China and it underlines the leadership’s ambivalence towards markets. We think this will take a toll on economic growth over the medium term. And we expect it to weigh further on equities too.

30 July 2021

China Economics Weekly

Evergrande is a poster child for property sector risks

Evergrande appears to be getting closer to a reckoning over the scale of its liabilities as regulators, banks and local governments tighten the screws. It is just the largest of many developers that have leant heavily on pre-sales and on creative accounting to circumvent rules on borrowing. The government’s priority will be to ensure that any restructuring is orderly. But a slowdown in property construction activity will be hard to avoid.

23 July 2021

China Activity Monitor

Downhill from here?

Our China Activity Proxy (CAP) suggests that growth accelerated in q/q terms last quarter but that output edged down in June on the back of softer industrial and construction activity. We think China’s COVID-19 rebound has reached its limits and that output will drop back further during the rest of this year.

22 July 2021
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