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Monetary conditions in China are no longer particularly loose and efforts to “normalise” policy are probably nearer to completion than generally believed. We expect three more reserve ratio increases over the rest of the year. This should be sufficient to …
31st May 2011
The Capital Economics China Activity Proxy (CAP) shows growth continuing steadily to decline, but none of the component indicators give any reason to think that China is facing a hard landing. … Gradual slowdown, not hard …
26th May 2011
China has been slowing for a while but a hard landing is unlikely. The threat from power shortages is less severe than may first seem and with inflation likely to fade – in part due to slower growth – the government has room to loosen policy if needed …
23rd May 2011
China’s current account surplus will soon rebound unless the government embraces significant policy reform. The Five-Year Plan signals that there is widespread agreement in principle on the need to rebalance. But there appears to be little appetite in …
20th May 2011
Power shortages are adding to investor concerns about the outlook for China’s growth. The main problem is that the government has not allowed regulated electricity prices to increase in line with the price of coal. Many power plants are consequently …
17th May 2011
Hong Kong is on course for another year of above-trend growth after a strong performance in Q1, but its property bubble is growing. Prices could plausibly halve if buyers started to question how long they can rely on low mortgage rates and on mainland …
13th May 2011
Inflation fell last month but it remains at a level that will keep China’s policymakers on edge. There was also further evidence that the economy was weaker at the start of Q2 than previously thought. … Inflation high, activity unexpectedly …
11th May 2011
Headline inflation probably fell last month on the back of sharp outright falls in vegetable prices. With economic growth stabilising, policymakers signalling they are willing to tolerate faster currency appreciation, and global food prices stalling, …
10th May 2011
Weaker-than-expected imports brought China’s trade account back into a large surplus in April. Imports from Japan fell, but most striking was the slide in total commodity purchases. We estimate that the volume of commodity imports overall was lower than …
Today’s economic discussions between China and the US are taking place in an atmosphere of unusual warmth. There are two obvious reasons – the fall in China’s trade surplus and the renminbi’s recent gains against the dollar, which the US Treasury believes …
9th May 2011
The Capital Economics China Activity Proxy (CAP) suggests that economic growth is stabilising. Neither overheating nor a hard landing appears an imminent threat. … Growth …
27th April 2011
S&P’s decision to put a negative outlook on the US’s AAA credit rating will have been greeted with wry smiles in Beijing. Officials there have long been of the view that US policymakers cannot be trusted to safeguard the value of China’s dollar …
21st April 2011
China appears to be on the verge of allowing faster currency appreciation in response to inflation . This may not last long if inflation drops back in the second half of the year, as we expect. For now though, markets are probably underestimating the …
19th April 2011
China’s Q1 GDP data confirm that the economy has slowed, though the seasonally-adjusted figures were less enlightening than we had hoped. The continued strength of food price inflation is a concern, but inflation pressures are probably less widespread …
15th April 2011
The People’s Bank today launched a new measure of financing conditions. In this Update we outline what the new measure is and how useful we expect it to be. … What should we make of the new financing …
14th April 2011
China may have recorded a trade deficit last quarter but the pace of its intervention to hold down the renminbi barely slowed. Meanwhile, a rebound in lending last month is consistent with our view that policymakers have relaxed their stranglehold on …
Food prices probably drove headline inflation back above 5% in March, but non-food inflation still seems subdued, particularly when the impact of January’s re-weighting of the CPI basket is taken into account. With monetary conditions remaining relatively …
13th April 2011
A strong rebound in exports propelled China's trade back into a small surplus last month. There was still a deficit over the first quarter as a whole, but the difference from a year ago can be entirely explained by the increase in commodity prices since …
11th April 2011
The results of China’s largest quarterly business survey, released today, add to the pile of evidence that economic growth peaked at the end of 2010. There are tentative signs that growth is shifting inland from the coast. Less positively, large and …
8th April 2011
The timing of today’s rate hike was a minor surprise but the bigger picture is that interest rates have played a small part in China’s tightening cycle to date. We think that monetary tightening over the rest of 2011 is likely to come through further …
5th April 2011
China’s official PMI rose in March but, when seasonal factors are taken into account, both it and the alternative index from Markit/HSBC are consistent with the idea that growth has slowed moderately since late last year. Meanwhile, price pressures seem …
1st April 2011
High commodity prices have achieved what the last Five-Year Plan and a string of summits with key trading partners could not: a rebalancing of Chinese trade. In this China Watch we consider the implications for China and the world. In the coming month’s …
31st March 2011
The Capital Economics China Activity Proxy (CAP) provides further evidence that economic growth has levelled out over the last quarter. Market worries about overheating and dramatic monetary tightening already appear to be easing. … Activity growth …
25th March 2011
The recent data suggest that China’s households are increasingly reluctant to spend. Real retail sales growth slumped to a five-year low in the first two months of 2011. Other measures of household spending have been much weaker than the retail sales …
22nd March 2011
Evidence is mounting that China’s overheating threat is receding. The People’s Bank will continue to raise reserve requirements, as it did today, to ensure that bank lending remains under control, though probably at a slower pace than recently. Benchmark …
18th March 2011
China’s businesses are signalling that demand is slowing. Households are slightly less concerned about inflation than they were three months ago. By a wide margin, they still prefer to save rather than spend. … The view from the ground - Q1 …
16th March 2011
With the usual volatility around Chinese New Year and revisions to the way key data are collected clouding the view, about the only clear picture that emerges from China’s latest data is that retail sales growth has slumped. The consumer-led rebalancing …
11th March 2011
China’s unexpected trade deficit in February reflects both distortions around Chinese New Year and the impact high commodity prices are having on China’s import bill. Leading indicators of export demand and past experience both suggest that the surplus …
10th March 2011
Premier Wen Jiabao put price stability at the centre of the government’s concerns in his speech at the weekend. So here is a question for delegates to the National People’s Congress to ponder during their long hours in the Great Hall of the People. Why do …
9th March 2011
Non-food inflation has continued to rise but we remain sanguine about the outlook, not least because much of the latest increase seems to be due to the introduction of new index weights. High oil prices are a lower threat in China than elsewhere in Asia, …
8th March 2011
Much of the talk at the National People’s Congress is of the need to boost domestic demand. But with the finance ministry projecting an even smaller budget deficit for 2011 than 2010, the government’s commitment to rebalancing the economy remains in …
7th March 2011
The inclusion of a lower growth target in the new Five-Year Plan is a simple acknowledgement that growth will slow as China’s pool of surplus rural workers dries up. The call for better quality growth – meaning that its benefits should be more widely …
2nd March 2011
China’s two PMIs fell further last month and are now consistent with a pace of growth slower than the average of the last few years. Firms report that input prices are rising fast but the prices they charge to customers are much more subdued. Overall, …
1st March 2011
Hong Kong’s economy is growing at a healthy pace but residential property looks increasingly overvalued and today’s budget underlines that the government has few effective means to help. … Hong Kong property bubble …
23rd February 2011
The high level of consumer price inflation in China is a poor guide to how the competitiveness of its exporters is changing. Foodstuffs apart, factory gate prices are today rising only slightly faster than in the US. Over the past five years they have …
22nd February 2011
Much of the initial reaction to China’s new property price statistics has focused on the fact that property prices are “still rising”. But the median increase in new residential prices among the surveyed cities over the past 12 months was 6.1%, well below …
21st February 2011
Consumer price inflation last month was well below expectations. Bank lending soared, as usual at this time of year, but the People’s Bank does seem to have had some success in slowing the pace of lending towards the end of the month. All-in-all, today’s …
15th February 2011
The doubling of import and export growth between December and January seems to reflect not just the usual volatility around Chinese New Year but also confidence among manufacturers about the prospects for global demand. … Foreign Trade …
14th February 2011
January’s consumer price inflation figures will be the most closely-watched of China’s upcoming batch of data. But the lending data will also be worth a look for what they tell us about the government’s struggle to keep credit growth under control. …
11th February 2011
The sharp increase in food prices ahead of Chinese New Year is no surprise, but evidence of rising non-food price inflation is a greater cause for concern. Still, if we are right that economic growth has stopped accelerating, upward pressure on core …
10th February 2011
Today’s interest rate announcement again showed the People’s Bank applying the biggest rate increases to long-term deposits, in an attempt to encourage savers to keep their money in banks rather than seek speculative returns elsewhere. By contrast, …
8th February 2011
The US Treasury has again chosen not to label China a currency manipulator. With US economic prospects looking brighter, the immediate risk of a flare up in tensions over China’s trade and currency policy seems low. Nonetheless, China’s imbalances are …
7th February 2011
China’s two PMIs give some conflicting messages for January, but the overall impression is that activity is no longer accelerating and that inflation pressures, while still high, have declined. … PMIs …
1st February 2011
The Capital Economics China Activity Proxy (CAP) suggests that activity slowed in the final weeks of 2010. This is further evidence that the economy is not overheating. … Early signs of activity …
31st January 2011
The property tax plans that were announced yesterday look more like token measures than serious attempts to dampen property market speculation or provide local governments with a secure source of income. The State Council yesterday gave the go-ahead for …
28th January 2011
Interbank rates have spiked to multi-year highs ahead of Chinese New Year. This partly reflects seasonal factors, but also that successive required reserve ratio (RRR) hikes are squeezing banks’ ability to lend. The trade surplus and financial inflows are …
26th January 2011
China’s dual imbalances – its trade surplus and its domestic reliance on investment over consumption – both widened in real terms in 2010. Government fiscal policy made things worse. … China’s imbalances getting …
24th January 2011
China’s economy ended 2010 with momentum strong but is likely to slow in 2011 as real estate construction spending weakens and stimulus projects reach completion. With inflation also now steadying, there is likely to be little need for policymakers to …
20th January 2011
Even if we shared the common view that China’s property market is in a bubble, the tax that seems likely to be introduced soon on residential property would not be a solution. … Property tax no …
19th January 2011
Consumer price inflation probably fell in December, as food prices finally stopped rising. Non-food inflation remains low and neither capacity constraints nor monetary growth look likely to push it significantly higher in the short-term. Inflation is …
18th January 2011
