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A key channel through which emerging markets could be affected by the strains in the global banking sector is if lending by foreign banks falls sharply. On this front, EMs’ vulnerabilities have eased since the Global Financial Crisis. But there are still …
16th March 2023
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
14th March 2023
With Hong Kong’s economy on the mend, the budget unveiled today curtailed some of last year’s emergency spending. But it still signals a supportive fiscal stance, particularly in areas hardest hit by COVID. Together with the reopening of Hong Kong’s …
22nd February 2023
Bank deposits held by Chinese households have soared over the past year. But that mostly reflects a shift out of riskier assets rather than a surge in savings. In fact, our calculations show that household wealth declined in 2022 for the first time in at …
20th February 2023
The roots of the crisis in China’s property sector lie in the worsening long-term outlook for demand. This has not improved. But sales started the year so beaten down that a short-run cyclical recovery is likely. Sales of new residential property fell …
15th February 2023
Some of the moves in China’s financial markets that followed its rapid reopening – including a rise in equity prices, higher bond yields and stronger renminbi – have unwound in the past couple of weeks, but we think they will resume before too long. …
10th February 2023
We held a Drop-In today to discuss the big economic and financial market development across Emerging Asia. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we couldn’t answer during …
26th January 2023
China’s statutory retirement ages for men and women are low. But raising them would not make a big difference to the size of the workforce since most workers today keep working once they have passed retirement age. Only a quarter of men drop out of the …
25th January 2023
The Year of the Rabbit that begins on Sunday will see a revival in outbound tourism from China that we expect to be stronger than recoveries seen elsewhere. China is reopening into a world that has already dismantled most virus controls. Its state-owned …
20th January 2023
The theme of global economic fracturing, which was the focus of our Spotlight Series of research last September, is at the centre of economic discussion in 2023, including at Davos. We held an online drop-in session yesterday to update clients on our …
19th January 2023
We had expected disruption from China’s reopening wave of COVID infections to weigh heavily on activity well into Q1. But there is mounting evidence that much of China’s population has already been infected and that disruption is already fading rapidly. …
12th January 2023
The shift toward living with COVID will put some upward pressure on prices in China. But the uptick in inflation will not be as large as that seen in many other countries as they emerged from COVID controls over the past couple of years. While the initial …
9th January 2023
Downward pressure on the Hong Kong dollar has abated in recent weeks and we think it is very unlikely that the existing currency framework will be abandoned any time soon. For much of 2022, the USD/HKD rate traded at the upper end of the band defined by …
6th January 2023
China’s authorities appear to have given up trying to manage the spread of COVID-19. If we’re right, the surge in infections underway in Beijing will spread rapidly across the country. As is happening now in the capital, many people will stay at home if …
15th December 2022
This is part of a series of reports outlining our key macro and market calls for 2023. Click here to view the full series. Our latest EM Outlook can be found here . EMs will experience one of the broadest slowdowns in GDP growth in 2023 since the 1990s. …
The authorities will not allow a protest movement to occupy China’s streets for any length of time. If the protests continue, a crackdown is very likely. They have no good options in the near-term to address protestors’ demands: relaxation of strict COVID …
28th November 2022
The reduction in the required reserve ratio (RRR) that the PBOC just announced will help banks follow through on a directive to defer loan repayments from firms struggling with widening lockdown restrictions. Market interest rates may also edge down as a …
25th November 2022
The next few weeks could be the worst in China since the early weeks of the pandemic both for the economy and the healthcare system . Efforts to contain the current outbreak will, at the very least, require additional localised lockdowns in many cities, …
22nd November 2022
Recent policy announcements have raised hopes that the property downturn may be coming to an end. But while the measures made public so far reduce some of the downside risks by giving developers and their creditors a little breathing room, they fall short …
17th November 2022
A shift away from zero-COVID would be positive for China’s economy over the medium term. But the immediate disruption of reopening would probably exceed the cost of keeping the policy in place, especially if vaccine coverage among the elderly hadn’t …
10th November 2022
Xi Jinping has removed the last vestiges of rival factions from the upper echelons of the Party, stacking the Politburo full of loyalists in a clean sweep not seen since the Mao era. With political ties taking increasing precedence over technocratic …
24th October 2022
General Secretary Xi’s Report to the Party Congress signalled a further shift away from market-based reforms in favour of a state-led campaign to increase self-sufficiency and economic security. Investors should also be wary of the growing focus on …
17th October 2022
There is no prospect of China lifting its zero-COVID policy in the near future and it probably won’t happen before the end of 2023. If the leadership did want to transition to living with the virus, it would first have to raise the vaccination rate of …
13th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
We expect the PBOC to follow its recent policy rate cuts with further easing over the months ahead. This informs our decision to lower our forecasts for China’s 10-year government bond yield. But we don’t think further rate cuts, of the scale we …
24th August 2022
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to support the faltering economy. We expect additional easing to follow in the coming months, but policymakers still appear reluctant to engineer a …
22nd August 2022
China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor. Virus outbreaks are happening with increasing frequency. The housing market remains in a downward spiral. And exports look set to drop back before long. To make …
18th August 2022
The People’s Bank (PBOC) has cut its policy rates in response to a loss of economic momentum. A cut to the Loan Prime Rate (LPR) later this month is now a given and we expect additional easing measures further ahead, though it’s far from clear that this …
15th August 2022
The trade sanctions introduced by China on Taiwan in retaliation for the visit of Nancy Pelosi are small in scope rather than serious efforts to force Taipei to shift course. China is constrained in the economic pressure it can exert unless it is willing …
3rd August 2022
This Update was originally sent to clients as a Rapid Response immediately after the readout of the Politburo’s quarterly meeting on economic affairs was published by state media. The readout of the Politburo’s quarterly meeting on economic affairs has …
28th July 2022
Policymakers are reportedly bringing forward some planned government bond issuance from next year to support infrastructure investment in the second half of 2022. This will help avert the slump in investment that was imminent without new funding and …
8th July 2022
Spending on high-tech “new infrastructure” should result in higher returns than adding more highways and railway lines. But it is not as effective a channel for cyclical policy stimulus. And a state-led push into these new, complex sectors won’t deliver …
7th July 2022
Cancelling all of the Trump tariffs on China would give a smaller direct boost to China’s export sector than many might think. More important would be the signal a unilateral rollback would give that the US wanted a reset in relations. This would lift …
9th June 2022
The view that policy support is best directed towards investment rather than consumption is deeply rooted in China. A few token consumer voucher schemes aside, this doesn’t seem to be changing. In the package of 33 support measures announced by the State …
8th June 2022
While it has rebounded over the past couple of weeks, we expect the renminbi to resume its fall against the US dollar as China’s economy underwhelms , interest rate differentials continue to shift against the renminbi, and the last two years’ strength of …
1st June 2022
The State Council has announced support measures totalling 1.7% of GDP. Most of this comprises incentives for banks to lend to struggling firms, rather than fiscal stimulus. The People’s Bank has also made a call for “all-out” efforts to boost lending, so …
24th May 2022
Today’s reduction to the five-year Loan Prime Rate (LPR) should help drive a revival in housing sales, which have gone from bad to worse recently. But the lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted …
20th May 2022
Officials are struggling to balance a raft of conflicting goals spanning everything from GDP growth, zero-COVID, exchange rate stability, deleveraging and regulation. We don’t expect much compromise on zero-COVID. In other respects, we expect a fudge: a …
12th May 2022
Despite calling on banks to nudge down borrowing costs, the PBOC stopped short of requiring that they lower the Loan Prime Rate (LPR) benchmarks this month. For now, policymakers are mostly relying on targeted measures to help support firms hit by the …
20th April 2022
The People’s Bank (PBOC) has just announced a cut to the reserve requirement ratio (RRR). This will help nudge down bank lending rates. But in order to make much difference to credit growth it needs to be followed up by cuts to policy rates and a …
15th April 2022
This Update was originally sent to clients as a Rapid Response immediately after the announcement by the PBOC. The People’s Bank (PBOC) forwent the opportunity to lower its policy rates today. That’s somewhat surprising given the sharp economic downturn …
The current virus wave will deal the biggest blow to China’s service sector since the original outbreak. If the lockdowns already imposed can suppress infections quickly then disruption to industry and construction should be modest. But we expect China’s …
16th March 2022
Half of China’s exports are produced in areas that are now experiencing COVID outbreaks and three quarters of its exports are shipped from them. It is still possible that infections can be suppressed without causing widespread disruption to global supply …
As Russia becomes increasingly isolated, it will lean more heavily on China as a trading partner. That will present some opportunities for Chinese firms to take market-share from western suppliers and to purchase energy at a discount. But any such gains …
2nd March 2022
The financial sanctions that have been imposed on Russia by the West put significant practical constraints on China’s dealings with Russia even where they don’t restrict them directly. There is little that China could do, if it wanted to, to soften their …
China’s leadership is trying to straddle a geopolitical divide. Russia is an ally, but being seen to take its side would hasten China’s decoupling from the West. Most likely, China will support Russia financially and through trade as much as any Western …
24th February 2022
The expansionary budget unveiled today will provide some support to Hong Kong’s economy this year. But this is unlikely to fully offset the drag from Fed rate hikes, let alone the massive hit to economic activity from a citywide lockdown, which looks …
23rd February 2022
At the Beijing Winter Olympics, China is once again displaying its sporting prowess. But the international reception has been notably icier than that for the 2008 Summer Games, highlighting that China’s continued economic rise is being accompanied by a …
17th February 2022
A Russian invasion of Ukraine would not make a Chinese attack on Taiwan more likely and would not undermine the willingness or ability of Taiwan’s allies to come to its defence. The argument that hostilities between Russia and Ukraine would heighten the …
15th February 2022
The People’s Bank (PBOC) has refrained from further policy easing for the time being. It left rates unchanged today when injecting liquidity via its reverse repo operations and medium-term lending facility (MLF). But the central bank’s latest monetary …