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Survey fails to capture Coronavirus shock While the Caixin manufacturing PMI edged down last month, the survey was conducted too early to tell us much about the extent of the economic damage from the Coronavirus outbreak. The February survey data will …
3rd February 2020
The new coronavirus was first identified exactly a month ago. In our first mention of it three days later, we noted that it was “drawing comparisons to SARS.” Initially, SARS was an illustration of how bad the outbreak could be. But SARS now looks like a …
31st January 2020
Overtaken by the coronavirus The official PMIs show that manufacturing activity weakened, and non-manufacturing strengthened, in the lead-up to the Coronavirus outbreak. The following months’ PMIs will give insight into how damaging the virus is. The PMIs …
The number of deaths inside China attributed to the new coronavirus is now on course to exceed those from SARS by early next week. The measures taken by the government and the public to limit transmission are having a significant economic impact. …
30th January 2020
Our China Activity Proxy (CAP) estimate for China’s rate of growth in December is somewhat academic at this point but, for what it’s worth, it showed the economy holding up well. Measures to constrain the new coronavirus will have dealt a sizeable blow to …
28th January 2020
Even if the coronavirus outbreak is brought under control quicker than SARS was in 2003, the economic impact now looks likely to be of at least a similar scale. We estimate that SARS lowered China’s growth by three percentage points in the worst-affected …
27th January 2020
Virus starting to take a toll on economic activity When we first discussed the potential impact of the coronavirus on Tuesday, there were 300 confirmed cases and six fatalities. Those numbers have since jumped, to 830 infections and 25 deaths. The rapid …
24th January 2020
Overview – Cooling property construction is likely to weigh on economic activity in the coming quarters. But with external demand starting to stabilise, the slowdown should be gradual, as long as the coronavirus outbreak is contained. External Demand – …
23rd January 2020
Fears are growing about the spread of a newly-identified coronavirus across Asia. In this Update we discuss the likely implications for the region’s economies. Stock markets across the region fell today as fears over the spread of the virus escalated. It …
21st January 2020
PBOC on hold, for now The Loan Prime Rate (LPR) was unchanged in January. The one-year rate remained at 4.15% (both the Bloomberg consensus and our forecast was 4.10%), and the five-year rate stayed at 4.80%. The LPR replaced the PBOC’s traditional …
20th January 2020
Hurdles remain to Wall Street’s China dream The Phase One trade deal signed this week includes commitments by China that will widen market access for US non-bank financial institutions (NBFIs). Foreign ownership caps on insurance, securities, futures and …
17th January 2020
Economic activity finishes 2019 on a stronger note Economic activity picked up last month, helping to avert a further slowdown last quarter. But despite the recent uptick in activity, we think it is premature to call the bottom of the current economic …
Monetary easing still insufficient to lift credit growth Growth in outstanding broad credit was unchanged last month as a slowdown in bank lending and direct financing was offset by an easing contraction in shadow credit. With credit growth less …
16th January 2020
The trade deal between the US and China marks an end to the first phase of the trade war. China’s pledges on imports from the US are unlikely to be met but that may not matter to the deal’s long-term success. It removes the downside risk of imminent …
15th January 2020
Trade data less upbeat than meets the eye Headline trade growth surged in December. But this is more a reflection of base and price effects than of current strength. And while the outlook for exports is improving, domestic demand will remain subdued. …
14th January 2020
Recovering pork supply to offset higher oil prices Fuel prices jumped in December, pushing non-food inflation to a 5-month high. Another pick-up seems likely this month, even though the spike in oil prices following the killing of Iranian General …
10th January 2020
Pressure on food prices ease Moderating food price inflation took the pressure off consumer price inflation while producer price deflation eased thanks to base effects and an increase in energy prices. The big picture is that demand-side pressures remain …
9th January 2020
Outflows shrink as trade tensions ease The official foreign exchange reserves figures suggest that the PBOC continued to refrain from direct FX intervention last month on the back of easing trade tensions. With outflows moderating – and pressure on the …
7th January 2020
Hukou reform not a gamechanger for property The scrapping of restrictions on residency (hukou) in smaller cities announced last week might give a boost to property markets in some places but it will be small. With urbanisation slowing and population …
3rd January 2020
External demand recovering but construction cooling The manufacturing PMIs ended 2019 higher than where they started the year but we doubt this means the worst is over for China’s economy. While it does appear that export growth is bottoming out, downside …
2nd January 2020
Our China Activity Proxy (CAP) suggests that growth picked up last month. That’s a challenge to our expectations of a slowdown in growth in 2020. But the resilience of property construction still looks unsustainable. If this sector slows significantly so, …
20th December 2019
Bond defaults hurting credit allocation Corporate bond defaults continue to dominate the headlines. As we argued two weeks ago , the recent pick-up in defaults adds to broader evidence that corporate balance sheets remain under strain. That said, it …
This Update was originally sent to clients as a Rapid Response immediately after the announcement by the PBOC. The Loan Prime Rate (LPR), the reference point against which banks now price loans, held steady in December. The one-year LPR was unchanged at …
China’s apparent reluctance to commit to the extra $200bn of US imports relative to 2017 levels that the US is requesting over the next two years as part of the Phase One deal is understandable: achieving the target would require imports from the US to …
18th December 2019
The People’s Bank has made another small downward adjustment to the rates it charges banks for short-run liquidity. We expect further cuts in the coming months, which will open the door to lower interbank rates and encourage banks to cut lending rates . …
Strong headline figures only half the story The activity and spending indicators beat expectations. But retail sales and real estate activity are weaker than the headline figures suggest. And we think growth will resume its downward trend before long. …
16th December 2019
“Phase One” deal may not stick A deal appears to have been reached which will avoid the tariffs on $160bn worth of US imports from China that were scheduled to come into force on Sunday. The details have yet to be confirmed but China has reportedly agreed …
13th December 2019
Domestic headwinds will continue to weigh on growth next year, even as the external environment starts to improve. We expect this to trigger additional policy easing, with the PBOC likely to cut rates by more than most anticipate and allow the renminbi to …
12th December 2019
Monetary easing still failing to lift credit growth Growth in outstanding broad credit was unchanged last month, despite recent monetary loosening by the People’s Bank. This suggests that more aggressive action will be needed to shore up growth. Chinese …
10th December 2019
Headline inflation close to a peak Rising pork prices pushed consumer price inflation to its highest level in close to eight years last month. But the pick-up in food inflation will reverse soon and broader demand-side price pressures remain weak, with …
China’s property sector is central to its economic performance, its demand for many materials and the stability of its financial system. In this updated and expanded Handbook, we discuss the drivers of the property cycle and answer key questions on …
9th December 2019
Base effects mask continued weakness in domestic demand Exports continued to languish last month and the pick-up in headline import growth reflects base effects rather than stronger domestic demand. Meanwhile, FX reserves data released over the weekend …
Bond defaults picking up again Corporate bond defaults have surged again recently, having subsided during the first half of this year. The value of bonds defaulting this year is now on course to exceed last year’s total. (See Chart 1.) Chart 1: Onshore …
6th December 2019
Pressure on manufacturing appears to have eased The survey data improved across the board last month, hinting at a pick-up in growth momentum. But we doubt this marks the start of a decisive rebound in activity. The Caixin manufacturing PMI defied …
2nd December 2019
As things currently stand, the US is due to extend its punitive tariffs to cover nearly all goods imported from China in two weeks’ time. But the Trump administration has appeared keen to avoid that happening almost since the president announced the …
29th November 2019
US politicians are all China hawks now The HK Human Rights and Democracy act that President Trump signed into law this week does not require any immediate changes in US relations with China and Hong Kong, but it underlines the extent to which “standing …
Our China Activity Proxy (CAP) suggests that the economy decelerated last month to its weakest pace of growth since May. Recent headwinds are domestic in origin, reflected in slower movements of freight and of travellers for business and leisure. Property …
26th November 2019
Trump may move slow on HK bill amid trade talks On Wednesday, the US Congress passed the HK Human Rights and Democracy Act in a near-unanimous vote. Trump will need to sign the bill by early December unless he decides to veto it, which is unlikely as a …
22nd November 2019
The latest Loan Prime Rate (LPR) reductions confirm that banks are lowering lending rates on new loans in response to the recent cuts to the PBOC’s lending facilities. And policymakers’ willingness to embrace lower rates on long-term loans hints at a …
20th November 2019
For the first time this easing cycle, the People’s Bank has cut the rate it charges banks for short-run liquidity. We expect further cuts in the coming months, which will open the door to lower interbank rates and make banks less reluctant to cut lending …
18th November 2019
US tariff rollback would offer meagre gains Despite some hiccups, US and Chinese negotiators still appear to be making progress towards a “Phase One” trade deal. In an encouraging step, both countries have relaxed restrictions on bilateral poultry imports …
15th November 2019
The slowdown resumes Activity and spending slowed across the board last month, more than reversing the uptick at the end of Q3. With further weakness on the horizon, we think additional policy stimulus is due before long. Growth in industrial production …
14th November 2019
If Hong Kong’s special treatment under US law were revoked, the city would lose access to sensitive US technology and face an increased threat of US tariffs. The short-term economic damage would be manageable, but it would accelerate the erosion of Hong …
11th November 2019
Further stimulus needed Monetary easing is failing to lift bank loan growth, while fiscal constraints are weighing on broader credit expansion. This should increase pressure on the PBOC to loosen policy more decisively. Chinese banks extended RMB 661bn in …
The People’s Bank is powerless to stop consumer price inflation jumping above its target without undermining its broader mandate to support growth and employment. Given this trade-off we expect the central bank to prioritise the latter and ease monetary …
Phase One comes into focus The outlines of a “Phase One” trade deal with the US are coming into focus. The two sides have agreed in principle to a “proportional” rollback of tariffs, according to China’s commerce ministry, with China also likely to pledge …
8th November 2019
Shipments improve amid trade deal optimism The contraction in both exports and imports eased more than expected last month. But even if the “Phase One” US-China trade deal crosses the finish line, it is unlikely to alleviate the main headwinds facing …
Easing capital outflows keep PBOC on the side-lines The official foreign exchange reserves figures suggest that the PBOC continued to refrain from direct FX intervention last month as renminbi depreciation pressure subsided. This points to a decline in …
7th November 2019
After keeping interbank rates broadly stable for most of this year, the People’s Bank (PBOC) is starting to take more direct steps to push down borrowing costs. We think this could mark the beginning of a series of PBOC rate cuts. Today, the PBOC cut the …
5th November 2019
Plenum offers few clues on economic policy The communique released following the end of China’s Communist Party Plenum was long, but barely touched on the economy and, where it did, it said nothing new. Mentions of “the decisive role of the market in …
1st November 2019
