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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
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 …
20th September 2019
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
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
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
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 …
6th September 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
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
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 US decision to label China a currency manipulator is on shaky economic grounds since, if anything, the renminbi would be even weaker than it is now without policy support. But the move is another escalation in a deteriorating bilateral relationship …
6th August 2019
The PBOC has allowed the renminbi to fall to its weakest level in a decade in response to trade tensions. It appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency …
5th August 2019
The trade war between the US and China has made barely any difference to the scale of their bilateral trade imbalance, which was President Trump’s original concern. But China is reaching the limits of its ability and willingness to restrict imports from …
2nd August 2019
The People’s Bank has pushed down overnight interbank rates to multi-year lows. This is partly a response to market jitters following the Baoshang Bank takeover and may partially reverse in the coming days. But we think that the broader shift toward …
25th June 2019
The immediate economic impact of the protests in Hong Kong will be very small. But continued erosion of Hong Kong’s autonomy, which is threatened by the proposed extradition law, would undermine a key foundation of its economic success. … What do the …
12th June 2019
We think the small scale of China’s planned tariff hikes reflects three factors – a desire not to escalate tensions, the limited scope for further tariffs and China’s ability to use other tools to punish US firms. … Three reasons for China’s modest …
14th May 2019
The key takeaway from today’s policy announcements at the opening of the National People’s Congress is that the leadership are still trying to balance efforts to support growth with concerns about financial risks. Officials pledged some moderate policy …
5th March 2019
China looks likely to introduce only about half as much fiscal and monetary stimulus in response to the current downturn as it did in 2015/16. Any rebound in growth will be much more tepid as a result. The boost for countries that export to China will be …
6th February 2019
The trade war has so far resulted in a much sharper slowdown in China’s imports from the US than its exports to the US. But exports will weaken soon unless existing tariffs are rolled back. … Assessing the impact of the tariffs so …
28th November 2018
With a further $200bn of US tariffs now confirmed, and China reiterating that it will retaliate with tariffs of its own, we take stock in this short note of where China stands in the trade war. … Taking stock of the new …
18th September 2018
China has more to lose economically from a trade war than the US. But the damage as the Trump administration expands tariffs will be mitigated by China’s high market share in many of the targeted products, which will push a portion of the cost onto US …
12th July 2018
If President Trump follows through on his threat to expand further the range of Chinese goods subjectto punitive tariffs, China is likely to respond quickly by targeting US firms operating in China. This couldbe highly damaging for many of those companies …
19th June 2018
The State Council is reportedly mulling the removal of all remaining limits on the number of children that Chinese families can have. But the small impact of past steps to dismantle the one-child policy suggests that policymakers would need to take a much …
22nd May 2018
The tariffs announced today will cause difficulties for some firms exporting from China but will have a barely perceptible impact on China’s wider economy . The key uncertainty now is whether President Trump sees the them as an end in themselves, or …
22nd March 2018
The Hong Kong dollar has weakened this week to historic lows, though remaining within the narrow confines of its currency peg. But this is the result of ample domestic liquidity which has kept local interest rates low as those abroad have risen, and isn’t …
8th March 2018
China’s retention of an “about 6.5%” growth target for GDP in 2018, while expected, undermines the argument that growth is being demoted as a central policy concern. Growth is likely to slow we believe, not least because the finance ministry is today …
5th March 2018
The removal of the two-term limit on China’s president is the clearest sign yet that Xi Jinping is reversing China’s reform era shift toward more institutionalised and rule-based politics. The quality of economic policy making is likely to suffer as a …
26th February 2018
Official talk about prioritising the “quality” of economic growth over speed has sparked speculation that the government may stop setting GDP targets. Unfortunately we think they are here to stay. GDP targets have been central to China’s economic policy …
22nd November 2017
The Party Congress kicked off today with the Report delivered by Xi Jinping. His ability to emphasise his contributions to Communist Party doctrine over those his predecessors hints at a successful consolidation of power. However, there were no signs in …
18th October 2017
Reform implementation is likely to accelerate after the Party Congress, particularly if President Xi emerges in a stronger position. But given Xi’s reluctance to relinquish state control over key parts of the economy, China’s structural problems are …
10th October 2017
With President Xi already firmly in charge of setting the government’s economic agenda, we don’t anticipate any major changes in policy goals after next month’s Party Congress. That said, a stronger Xi would be better placed to speed up the implementation …
13th September 2017
Anticipation is building ahead of next month’s Party Congress, which is widely seen as a potential watershed in policymaking if it results in President Xi successfully consolidating his power. The first evidence of how successfully he has been in …
7th September 2017
While other currencies have recently been rising against the US dollar, the Hong Kong dollar has been sliding to historic lows, albeit within the narrow confines of its currency peg. This is the result of ample domestic liquidity which has kept local …
24th August 2017
The value of China’s foreign exchange reserves fell by 10% in 2016 as the People’s Bank fought to prevent a disorderly decline in the renminbi. With the level of reserves still well above most estimates of what the PBOC needs to keep control of the …
9th January 2017
In the event of a trade war with the US, China’s response would go well beyond tariff increases. US companies would find their products and operations in China subject to tighter regulation that hampered their capacity to do business there. China’s …
17th November 2016
Despite the threat of being hit with high tariffs and being labelled a currency manipulator, China will see benefits in the election of Donald Trump. In the near term, the dollar’s weakness against other major currencies should ease pressure on the …
9th November 2016
China’s government has the resources to clean up the bad debts in its financial system. Even if the corporate sector were to default on a quarter of its debt and the government responded by bailing out the banks, total government debt would remain below …
19th May 2016
If the economy doesn’t show signs of a turnaround in coming months, we would have to downgrade our relatively upbeat view of China’s economic prospects. But we would need to see evidence of clear economic deterioration to believe that markets are …
1st February 2016
Markets appear convinced that China is in the midst of an economic crisis. Yet even on the basis of our relatively downbeat measure of China’s growth, it remains one of the world’s fastest-growing economies. … China, growth …
25th January 2016
A shift in market expectations about China’s exchange rate has put Hong Kong’s peg to the US dollar under fresh scrutiny. But despite the surge in speculation, we think the peg will stay for years to come. … Could Hong Kong’s peg survive a speculative …
19th January 2016
The willingness of the People’s Bank to sell over $100bn of foreign exchange reserves last month is a measure of its belief that a stable currency is in China’s interests and that current downward pressure is driven by speculative rather than fundamental …
7th January 2016
China’s activity data for November provide further evidence that policy easing has helped to stabilise the economy. We continue to expect conditions to improve over the coming months. … Further signs that the economy is turning a …
14th December 2015
The IMF’s decision to include the renminbi in the SDR basket will not directly increase demand for renminbi assets. The implicit endorsement of the renminbi as a reserve asset is unlikely to sway the decisions of global asset managers either. Indeed, …
16th November 2015
A communique released after the conclusion of the Fifth Plenum provides a glimpse at the contents of the upcoming Five-Year Plan. It suggests that policymakers are not wavering on their reform ambitions despite speculation that recent market volatility …
30th October 2015
The abolition of China’s controversial one-child policy may have grabbed plenty of headlines, but the economic impact of the move will be small. … Abolition of one-child policy does not alter growth …
29th October 2015
We shouldn’t expect China to have a statistical system as robust as those in the developed world. But the problems in China go beyond those normally found in an emerging economy. The biggest is that the GDP growth rate is politically sensitive, which …
16th October 2015
It is likely to be a long time before any “Shanghai-London Stock Connect” scheme gets off the groundand even when it does the impact will be small. … Shanghai-London Stock Connect, more hype than …
22nd September 2015
China’s statistics bureau last week announced changes to how its GDP figures are compiled. In principle, the shift should improve the precision of the data. In practice, the changes to historical real growth rates are small and questions about the …
16th September 2015