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The survey data offer conflicting signals A divergence in the official and unofficial PMIs makes it unusually difficult to gauge how the economy performed at the start of Q4. On balance, growth appears to have picked up last month but activity is unlikely …
1st November 2019
Recession to extend into Q4 Hong Kong’s first recession in a decade is shaping up to be deeper than anticipated. And while last quarter will probably mark the trough in q/q growth, the city’s economy will continue to struggle. The city’s GDP contracted …
31st October 2019
A weaker start to Q4 The official PMIs fell by more than expected this month, reinforcing our view that the improvement at the end of Q3 didn’t mark the start of a sustained recovery . The official manufacturing PMI declined from 49.8 in September to an …
The corporate earnings season currently underway in China has been disappointing. Admittedly, the Q3 results published so far point to a slight improvement in year-on-year growth in earnings per share of domestically-listed firms. But the recovery was …
30th October 2019
Industrial policy still at odds with market reforms Chinese authorities announced new regulations this week that promise to cut red tape and help level the playing field for different types of firms from 1 st January. This appears partly aimed at …
25th October 2019
Our China Activity Proxy (CAP) suggests that growth edged up at the end of last quarter due to a rebound in industrial activity. But the prop from industry should be short-lived, and with the recent boom in property construction levelling off, growth …
24th October 2019
The detailed breakdown of China’s Q3 GDP data released today shows that a slowdown in industry overshadowed strength in the construction sector. The headwinds to the construction sector should only get stronger in the coming quarters. GDP growth edged …
21st October 2019
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, was unchanged in October. This will only increase pressure on the PBOC to ease funding costs for banks in the coming months. The one-year LPR was unchanged …
Further policy tightening for property Bank lending to the real estate sector continued to slow in Q3 according to quarterly data published by the People’s Bank this week. (See Chart 1.) This reflects policy tightening for the sector which shows no signs …
18th October 2019
A stronger end to a weak quarter An uptick in activity in September didn’t avert a slowdown last quarter. And policy support is unlikely to prevent cooling external demand and slowing construction from resulting in more weakness ahead. GDP growth slowed …
The rift that has widened between China and the US was caused by China’s emergence as a geopolitical competitor to the US, rather than the personality of Donald Trump. Decoupling will continue whether or not the two reach a deal on tariffs. This may spur …
17th October 2019
Stimulus still underwhelming Credit growth failed to pick up in September despite recent policy easing. And while we expect policymakers to take more aggressive action before long, the impact of any easing on credit growth and economic activity will …
15th October 2019
Consumer price inflation hits a five-year high Headline inflation continued accelerating last month but core inflation held stable at a low level. With demand-side pressures on prices set to remain subdued in the coming months, we think that the People’s …
The US is attempting to pluck low-hanging fruit first, rather than hold out for a more complete trade deal with China. But reaching an agreement on the more contentious structural issues remains an uphill battle and it still seems more likely than not …
14th October 2019
Shipments weak ahead of trade deal The contraction in both exports and imports deepened last month. Import growth should start to recover soon. But with the mini US-China trade deal unlikely to alleviate the main headwinds facing exporters, it will take …
A mini trade deal probably wouldn’t last The US and China may be on the brink of a mini deal that postpones the US tariffs that are due to come into force next Tuesday. China has reportedly offered to buy more US agricultural goods in return. It has …
11th October 2019
China Overview – China’s economy has remained resilient in recent months. But with the boom in property construction on borrowed time and headwinds from higher food inflation and cooling global demand likely to intensify further, it is hard to see how a …
10th October 2019
Outflow pressures remain muted China’s FX reserves declined unexpectedly last month but officials claim this was due to valuation effects and muted outflow pressures suggest that the PBOC will have felt little urgency to run down it reserves. The value of …
7th October 2019
US investment curbs unlikely to trump tariffs Recent media reports suggested that the Trump administration is considering ways to restrict US capital flows into China, including delisting Chinese firms from US stock exchanges and prohibiting government …
4th October 2019
Overview – After the deepest downturn since the Cultural Revolution in Q1, China’s economy will return to growth this quarter. But with labour market strains holding back domestic demand and external headwinds intensifying, output is still set to contract …
30th September 2019
Strong PMIs likely a false dawn China’s manufacturing PMIs jumped this month, indicating that activity got a break from the ongoing slowdown. But this is unlikely to mark the start of a turnaround. There are signs of a slowdown in construction activity, …
Too much of a good thing? Beijing’s new airport opened its doors this week. It will more than double the city’s passenger capacity, taking it well above other major international hubs, including New York, London, Tokyo, Hong Kong and Dubai. Even if …
27th September 2019
PBOC Governor Yi Gang today appeared to pour cold water on the prospect of imminent monetary easing. He said that the PBOC would not rush to follow the US Fed and ECB in cutting rates and that “China’s monetary policy will maintain its prudent …
24th September 2019
Our China Activity Proxy (CAP) suggests that growth remains resilient but has edged down slightly since the end of Q2. With property construction no longer accelerating and broader activity still under pressure, growth is likely to drop back further in …
23rd September 2019
Fiscal stance still accommodative Government spending contracted in August, leading some to question the strength of fiscal support. But with tax cuts still weighing on revenue growth, the budget deficit remains close to its widest ever. (See Chart 1.) …
20th September 2019
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, came in slightly lower for September. We think that more decisive cuts will materialize before long. The one-year LPR was set at 4.20%, down from the …
The ability of monetary easing to stimulate credit growth in China has diminished and we think this will lead the People’s Bank to pull down interbank rates further than most anticipate. But even this probably wouldn’t avert a further economic slowdown …
19th September 2019
Activity weakens further After worsening across the board in July, growth in industrial production, capital spending and retail sales fell even further last month. And with a strong rebound unlikely any time soon, we anticipate that more policy easing …
16th September 2019
How much food is in the basket? Pork prices in early September are 70% higher than they were this time last year. How credible is it that overall consumer price inflation is just 2.8% y/y? Unlike most statistics agencies, China’s doesn’t publish the …
13th September 2019
Intervention by China’s government to halt the spread of African Swine Fever (ASF) and mitigate its impact on pork prices is proving ineffective. Inflation will next year rise above the government’s target for the first time in nearly a decade as a …
12th September 2019
Credit growth holds steady Monetary easing has so far failed to generate much of a pick-up in credit growth, which remained unchanged last month. This should push policymakers to take further action. Chinese banks extended RMB1,210bn in net new local …
11th September 2019
Early-warning indicators suggest that Hong Kong’s banking system is primed for a crisis. And banks face multiple shocks from an economic recession, a housing market correction and capital outflows. But conservative lending standards and strong capital …
10th September 2019
Factory-gate deflation deepens Weakening demand dragged producer price inflation further into negative territory last month while surging pork prices kept consumer price inflation elevated. With demand-side pressures on prices increasingly subdued, we …
Export growth turned negative again Exports fell last month as global demand softened and US tariffs continued to take their toll. Imports improved thanks to strong infrastructure spending but remain consistent with a further economic slowdown. Meanwhile, …
9th September 2019
PBOC kicks into gear but fiscal stance unchanged The People’s Bank (PBOC) was quick to answer the State Council’s recent call for more stimulus, announcing a cut to banks’ required reserve ratio (RRR) today. (See here .) More policy easing will probably …
6th September 2019
The PBOC will release a portion of the reserves commercial banks’ hold at the central bank. While this will pull down interbank rates in the short run, the PBOC will need to cut its policy rate to make the lower interbank rates stick. But even if policy …
Fiscal stimulus taking effect The latest survey data suggest that exports have continued to struggle but that factory activity was propped up by stronger infrastructure spending. The Caixin manufacturing PMI jumped from 49.9 in July to a five-month high …
2nd September 2019
Back when a trade war was just a rallying cry in Donald Trump’s presidential campaign, he pledged to put a 45% tariff on all Chinese goods. 45% on some products no longer seems unlikely. But both sides are opting to avoid across-the-board tariffs, …
30th August 2019
China’s share of global exports has increased over the past year, despite US tariffs. Renminbi depreciation and the transhipments of goods to the US via neighbouring countries can take much of the credit. China’s economy has held up well despite the …
29th August 2019
With President Trump adding yet more US tariffs to the pipeline, the impact on China’s economy is starting to add up. With the drag on GDP growth set to rise to nearly one percentage point before long, it is significant enough to warrant looser monetary …
26th August 2019
The tariffs announced today by China’s government are a departure from previous rounds of retaliation: they focus almost entirely on further raising tariffs on products that have already been targeted. That most likely reflects concern that applying …
23rd August 2019
PBOC could fend off a US attack on the RMB There is speculation that the Trump administration could attempt to weaken the US dollar by intervening in FX markets to push up the value of the renminbi. But we doubt such efforts to influence China’s exchange …
Hong Kong’s GDP is now just 3% of mainland China’s, down from 18% in 1997 when the city returned to Chinese control. But Hong Kong still serves as the main gateway between China and the world where financial flows are concerned. (See Chart 1.) This …
22nd August 2019
Our China Activity Proxy (CAP) suggests that growth remained strong at the start of Q3. However, with external headwinds mounting and property development likely to moderate, economic activity looks set to slow before long . The CAP is our attempt to …
21st August 2019
Quasi-rate cut still leaves the PBOC with work to do The newly revamped Loan Prime Rate (LPR), intended to replace the traditional benchmark lending rate as the reference point against which banks price loans, was launched today. The one-year LPR was set …
20th August 2019
A long-awaited shake-up of how China’s banks price loans should in time give policymakers much finer control of bank lending rates and could open the door to a quasi-rate cut as soon as tomorrow. But it won’t immediately clear the roadblocks that have …
19th August 2019
Foreign firms hardest hit by industrial slowdown Growth in industrial value-added fell to a 17-year low in July, according to data published this week, triggering renewed concerns about China’s economic outlook. Admittedly, these figures haven’t always …
16th August 2019
Disruptions from the ongoing protests look set to pull down Hong Kong’s GDP growth to its lowest since the global financial crisis this quarter and there is a growing risk of an even worse outcome if a further escalation triggers capital flight. The Hong …
14th August 2019
The slowdown resumes After improving in June, economic conditions worsened across the board last month as growth in industrial production, capital spending and retail sales all dropped back. We see more weakness on the horizon. Growth in industrial …
Credit growth sputters The latest slowdown in lending highlights the need for further monetary easing if policymakers are to succeed in putting a floor beneath growth. Chinese banks extended RMB1,060bn in net new local currency loans in July, down from …
12th August 2019
