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PBOC may stop short of formalizing tighter policy We had expected the PBOC to start hiking its policy rates this quarter given the strong economic backdrop. By the end of last year, output had rebounded well above trend and while headline y/y inflation …
26th March 2021
The renminbi has gained 9% against the US dollar since last May. But the factors that underpinned this appreciation have faded. With US yields moving in the dollar’s favour and China’s economic outperformance set to diminish, we now expect the renminbi to …
Our China Activity Proxy (CAP) shows a surge in year-on-year growth at the start of 2021. But the picture is more mixed after accounting for favourable base effects. Buoyant foreign demand boosted industry but travel restrictions held back services …
24th March 2021
China’s statutory retirement ages are low. Raising them, as the Five-Year Plan proposes, would make the pension system more affordable but it wouldn’t make an appreciable difference to the ongoing decline in the size of the workforce. Most older workers …
23rd March 2021
Commercial banks left the Loan Prime Rate (LPR) unchanged today. We have been forecasting the PBOC to hike rates this year but the likelihood of that is diminishing – the PBOC appears to favour quantitative controls on lending instead. Either way, credit …
22nd March 2021
Decoupling is Made in China too The acrimonious meeting in Alaska underlines that a new US administration has not led to a reset of US-China relations. China’s government had apparently hoped that some Trump-era sanctions might be rolled back as a …
19th March 2021
The 14 th Five-Year Plan makes clear that self-sufficiency has grown as a priority for China’s leadership. But it is light on specifics. The details will probably be fleshed out in the raft of industry-level plans that usually follow its publication. But …
Travel restrictions weigh on consumption, boost industry Economic growth surged in y/y terms in January and February. But the picture is more mixed after accounting for favourable base effects. Travel restrictions weighed on retail sales but boosted …
15th March 2021
China’s new policy blueprint seeks above all to promote a large and hi-tech manufacturing sector, both as a defence against decoupling by the West and as a source of productivity gains. Policymakers are pinning their hopes on rapid domestic innovation to …
The National People’s Congress ended yesterday. From an economic perspective, the key outcomes were the budget and policy targets for 2021 which we discussed here and the Five-Year Plan, which we’ll publish a Focus on shortly. (We’re also holding a …
12th March 2021
A pause in the credit slowdown After four months of consecutive declines, broad credit growth accelerated in February. But we think the slowdown in lending will resume before long given the hawkish signals out of the National People’s Congress (NPC). This …
10th March 2021
Consumer price deflation unlikely to persist A drop in food inflation caused by shifts in the timing of the Lunar New Year meant that headline consumer price inflation remained in negative territory last month. That said, broader price pressures continued …
Exports benefit from overseas lockdowns and domestic travel restrictions Export and import growth surged in y/y terms in January and February. Even accounting for favourable base effects, shipments look strong. Exports continued to be buoyed by …
8th March 2021
The reports delivered at today’s opening of the National People’s Congress (NPC) confirm that with the COVID-19 downturn now in the rear-view mirror the focus of China’s leadership has shifted away from shoring up near-term growth towards putting the …
5th March 2021
The National People’s Congress will convene today and reveal the government targets and priorities for 2021, along with the annual budget and 14 th Five-Year Plan. We will publish an Update with our initial analysis once the key details have been made …
The 14 th Five-Year Plan should provide a revealing view of the key challenges that China’s leadership believes it faces. High among them is a more hostile global environment. In the economic sphere, this will be reflected in calls to raise …
3rd March 2021
Spring Festival restrictions failed to lift industry The latest manufacturing surveys suggest that factory activity didn’t receive the boost we had anticipated from travel restrictions over the Spring Festival. Nevertheless, we think activity will remain …
1st March 2021
The National People’s Congress that starts on Friday is the stage on which the government sets out its economic plans. There are a few things to focus on. Withdrawal of fiscal support The budget presentation (also on Friday) is likely to confirm that the …
26th February 2021
Incoming data continue to point to strength in domestic activity, spending and revenues. Yet strains in China’s corporate bond market continue to grow, with the value of defaults hitting all-time highs. (See Chart 1.) This underlines the degree to which …
25th February 2021
Hong Kong has curtailed some of last year’s emergency spending but today’s budget signals that fiscal policy remains loose. There is room to do more, but the key determinant of the economic outlook is not in the financial secretary’s remit: it hinges on …
24th February 2021
Commercial banks left the Loan Prime Rate (LPR) unchanged on Saturday. But monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months. The …
22nd February 2021
Spring Festival spending subdued During the last sexagenary cycle of China’s lunisolar calendar, Years of the Ox were by some way the weakest for GDP. (See Chart 1.) 2021 will be different. The suppression of output during last year’s lockdown means that …
19th February 2021
Our long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But …
18th February 2021
China has again shown its prowess in extinguishing COVID-19 flare-ups: infections were reported in 24 of China’s 31 provinces in January; no new cases of domestic transmission were found anywhere in China this week. The vaccination programme is looking …
11th February 2021
Slip into deflation no cause for concern Headline consumer price inflation returned to negative territory last month, but this was largely due to a shift in the timing of the Lunar New Year. In fact, producer price inflation turned positive for the first …
10th February 2021
Credit growth continues to slow as policy turns less supportive Credit growth in China dropped back further last month due to a broad-based slowdown in both bank and non-bank lending. Credit is likely to continue decelerating as the PBOC focuses on …
9th February 2021
Ant’s days as a freewheeling tech firm are over After years of presenting itself as a tech firm and benefitting from limited oversight, fintech giant Ant Group has reportedly agreed to restructure as a financial holding company (FHC). As a result, it will …
5th February 2021
Industrial rebound shifts down a gear The latest surveys suggest that the pace of expansion in the manufacturing sector slowed in January. But that’s not too surprising given that output was already well above trend – capacity utilisation rates in …
1st February 2021
Lunar New Year travel kicks off with a whimper Yesterday was the first day of what the government calls the “Spring Festival travel season”, which lasts 40 days. During this period, the Ministry of Transport (MoT) publishes daily data on long-distance …
29th January 2021
Recovery sputters due to renewed virus outbreak Hong Kong’s economy was treading water at the end of 2020 as the re-imposition of containment measures weighed on consumption. Unless authorities bring the ongoing outbreak under control soon, the recovery …
Short-term funding costs for banks have risen sharply during the past couple of weeks. The 7-day depository repo rate (DR007), which has been flagged by the PBOC as a key benchmark and focus of monetary policy, jumped over 100 basis points to a two-year …
New restrictions on travel will disrupt Lunar New Year plans for many families in China but they should also reduce the disruption to manufacturing and construction that normally causes output to slump in the first quarter of the year. The new government …
27th January 2021
Our China Activity Proxy (CAP) suggests that growth softened slightly at the end of 2020 but remained strong on the back of a further improvement in services. Domestic consumption should continue to pick-up this year as foreign demand drops back and …
22nd January 2021
Anti-trust guidelines target Ant and Tencent The PBOC issued draft guidelines on Wednesday that set explicit market share ceilings for non-bank payment providers, offering greater clarity about what the government’s anti-trust push against China’s tech …
Overview – China’s economy will continue to beat most expectations in the near term, as households spend more freely. But momentum will soften during the second half of the year as props from stimulus and exports fade. Consumer Spending – Household …
21st January 2021
Commercial banks left the Loan Prime Rate (LPR) on hold today. But with monetary conditions already being tightened in practice and underlying inflation set to rebound, we think it is still likely that the PBOC opts to formally hike rates later this year. …
20th January 2021
The detailed breakdown of China’s Q4 GDP data published today shows that the services sector, which had been lagging construction and industry, has returned to its pre-virus growth path, with all types of services activity now expanding in year-on-year …
19th January 2021
Strong end to 2020 pushes Q4 GDP above pre-virus rates On the official figures, China’s economy expanded at the fastest pace in two years last quarter. The monthly data suggest that growth dropped back slightly heading into 2021 but it remains strong. We …
18th January 2021
Virus flare-up to dampen holiday travel China reported 210 new COVID-19 cases today (66 of them asymptomatic), the highest daily tally since March. The virus flare-up began in Hebei province but has spread more widely than previous localised outbreaks. A …
15th January 2021
Trade remains resilient amid lockdowns abroad Exports continued to do well last month, as renewed lockdowns abroad ensured the shift in consumption from services to goods persisted in many of China’s trading partners. Meanwhile, a pick-up in import growth …
14th January 2021
Credit growth continues to slow as bond defaults weigh The slowdown in broad credit growth gathered momentum in December. We think credit growth will drop back further in the coming months as the PBOC continues to focus on reining in financial risks now …
13th January 2021
Consumer price deflation reverses as food prices rise Headline inflation returned to positive territory last month as the drag from pork prices eased. Broader price pressures also edged up on the back of stronger demand. With underlying inflation likely …
11th January 2021
COVID-19 battle not over but vaccines offer hope Shijiazhuang, a city of 11 million and the capital of Hebei, was put into lockdown on Thursday, after recording 117 new coronavirus cases the previous day (67 of them asymptomatic). Mass testing is being …
8th January 2021
The share of bank loans flowing to the property sector has doubled during the past 15 years. But new restrictions are likely to put an end to this upward trend. Coupled with broader limits on developer debt introduced last year, the scene is set for a …
Industrial rebound peaking The latest manufacturing surveys suggest that factory activity remained strong in December but that the pace of expansion has started to ease. The official non-manufacturing PMI suggests that growth elsewhere also softened, with …
4th January 2021
COVID-19 has wreaked havoc on the world economy, which is set to contract the most since WWII this year. China has not been immune – it is on track for its slowest growth since the Mao era – but set against the gloomy global backdrop, its economic …
23rd December 2020
Our China Activity Proxy (CAP) suggests that growth remained robust last month thanks to a further pick-up in services and continued strength in construction and exports. We expect growth to remain above-trend for a while even as policy support is …
21st December 2020
Commercial banks left the Loan Prime Rate (LPR) on hold today. But with China’s leadership eyeing a gradual withdrawal of policy support, we think the PBOC will start to hike its policy rates next year. The one-year LPR was unchanged at 3.85% (both the …
Politburo tea leaves ahead of the CEWC We’re still awaiting news out of the Central Economic Work Conference (CEWC), which sets the economic targets and policy priorities for the coming year. (See here for what to expect.) We did, however, get some hints …
18th December 2020
Activity goes from strength to strength China’s economy continued to accelerate across all fronts in November. We expect output to remain above-trend in the coming quarters, even as tailwinds from stimulus and exports start to ease. Industrial production …
15th December 2020
