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Our China Activity Proxy (CAP) suggests that around half of the drop in output during the recent virus wave reversed in May. This recovery looks to have continued in June. But a lot of damage has already been done and we now doubt that China’s economy …
22nd June 2022
Unattainable even on paper China’s statistics office is adept at massaging GDP data. But it can’t perform surgery. In April and May combined, retail sales fell 8.9% y/y and industrial output and real exports both fell 1.1%. Even if growth returned in June …
17th June 2022
Industrial recovery well advanced, consumers still weak The May data suggest that a post-lockdown recovery got underway across most parts of the economy last month. It is likely to have progressed further in June. But the recent resurgence in infections …
15th June 2022
Less tech, more regulation The Ant IPO is back on, according to Bloomberg and Reuters. If confirmed, what would this signal about the regulatory crackdown? An IPO would be positive as a sign that tech firms and the regulators have found a way to get …
10th June 2022
Credit growth stronger as government borrowing picks up Credit growth was stronger than expected last month. It is likely to accelerate following the clear signal in late May that policymakers want banks to step up lending. More policy easing is likely. …
No sign of upstream price pressures Consumer price inflation was unchanged last month and remains well below the government’s target of 3%, while producer price inflation dropped to its lowest in a year. As such, inflation is unlikely to be a constraint …
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
Rebound in exports an exception rather than the rule Export and import y/y growth picked up last month. In volume terms, exports rebounded while imports were largely unchanged. We think outbound shipments will soften again before long amid growing …
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
Accelerating towards a fiscal cliff Last week’s announcement of 33 support measures in six areas by the State Council has been followed by a flurry of statements by ministries signalling that they understand the urgency of the situation. A State Council …
2nd 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
Industrial activity improves but recovery will be slow The Caixin manufacturing index published today rebounded last month thanks to the easing of virus containment measures. Taken together with the official survey, they suggest that a recovery in …
Past the worst but weakness persists The official PMIs add to broader evidence that activity has started to rebound as containment measures were rolled back. That said, the recovery is likely to remain tepid amid weak external demand and labour market …
31st May 2022
China’s beleaguered property developers may soon see some respite both from their inability to borrow at reasonable rates and from sliding property sales. Last week, PBOC Governor said that the government would “correct the contraction in credit to …
30th May 2022
Inventories at record high relative to sales Most observers assumed that China’s Omicron wave would worsen goods shortages both at home and abroad but the data increasingly point to the opposite outcome, at least at the macro level. The latest evidence …
27th May 2022
Our China Activity Proxy (CAP) suggests that all of China’s pandemic-era growth has been reversed by recent lockdowns, with output in April no higher than during 2019. Activity should start to rebound this month on the back of easing restrictions. But the …
26th May 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
Three lessons from past outbreaks With the Omicron outbreak subsiding and policy support being ramped up, how quickly can the economy get back on its feet? Previous virus waves offers some clues. Table 1 summarizes how long it took key indicators to go …
20th 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 …
A cyclical trough The April data were even weaker than expected and are consistent with a sharp contraction in economic activity. Provided that the virus situation continues to improve, the economy should begin to rebound this month. But the recovery is …
16th May 2022
Shanghai officials today said they hoped to eradicate community transmission by next Friday. In Beijing, case numbers remain stable. Smaller outbreaks elsewhere have receded, with the result that there has been a sharp drop in the share of economic …
13th May 2022
Lockdowns held back credit growth Lending was much weaker than expected last month as lockdowns weighed on credit demand. This should nudge the PBOC to announce further easing measures soon. But the central bank continues to signal a relatively restrained …
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
CPI inflation ticks up but factory gate inflation eases Consumer prices rose at a faster pace last month. But inflation remains relatively subdued and there are already signs in the producer price data of upstream price pressures easing. As such, …
11th May 2022
Exporters have a bigger problem than lockdowns Goods trade softened further last month. Virus disruptions continued to take a toll but the main headwind to exports is weakening foreign demand. The pace of export growth slowed sharply from +14.7% y/y in …
9th May 2022
Backing off on tech regulation In a sign that officials are turning less hostile toward tech firms the Politburo last week pledged to “promote the healthy development of the platform economy”. This was followed by similar statements from the PBOC and …
6th May 2022
Growing headwinds spells modest recovery despite easing virus outbreak Hong Kong’s GDP contracted in the first quarter of the year, and although there are signs that activity is rebounding, we expect the recovery to prove weak. While virus containment …
3rd May 2022
President Xi has reportedly told officials to ensure that China’s real GDP growth exceeds that of the US this year. This is likely to happen on paper. The published data usually confirm that growth targets have been met and the official target this year …
29th April 2022
A strong stimulus-led rebound still looks unlikely The readout from today’s Politburo meeting repeated Xi’s call earlier in the week for all-out efforts to strengthen infrastructure construction. This was framed in the context of medium-term goals to …
Our China Activity Proxy (CAP) suggests that lockdowns in Jilin and Shenzhen triggered an outright contraction in the economy in March, even before restrictions were tightened in Shanghai and disruption to domestic freight traffic intensified this month. …
27th April 2022
Overview - China’s economy rebounded sharply from the initial COVID-19 outbreak. The recovery will be slower and more muted this time, even if the ongoing COVID outbreak is successfully quashed, as less policy support is planned and exporters face a …
26th April 2022
Currency slide will continue The renminbi had been defying the gravitational pull of a collapsing interest rate differential with the dollar. In recent days, something seemed to give. The onshore currency lost 1.8% against the dollar this week. The slide …
22nd April 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
Worse is still to come Official GDP growth beat expectations last quarter but it still slowed in q/q terms. In practice, the figures probably understate the slowdown. And growth looks set to be even weaker in Q2 given the mounting disruption from the …
18th 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 …
Economy still reeling from virus disruptions The PMIs pointed to the second-largest contraction in service sector activity on record in March. And the high-frequency data that we track suggest that conditions have deteriorated further so far this month. …
14th April 2022
Demand not supply is mostly to blame for pullback Goods trade dropped back sharply last month. While disruptions from the latest COVID-19 outbreak are partly to blame, shifts on the demand-side played a bigger role. Export growth decelerated from +16.3% …
13th April 2022
Credit growth rebounds to an eight-month high Broad credit growth was much stronger than expected last month amid increased policy support. With more easing on the horizon, we expect a further acceleration although a sharp pick-up in lending still seems …
11th April 2022
Inflation climbs amid higher commodity prices Factory gate inflation picked up last month, though this was masked in the headline figures by base effects. Consumer prices continued to rise as well. Although the price of some goods will stay high in the …
Property green shoots trampled New homes sales had stabilised around the turn of the year as the regulatory stance turned more supportive for homebuyers from October onwards. Given this policy shift, we had expected sales to rebound before long. But those …
8th April 2022
The number of new COVID cases across China has fallen over the past couple of days led by a sizeable drop in Shanghai. (See Chart 1.) There’s not much to celebrate if you’re in Shanghai though and have just had your lockdown extended. Chart 1: New …
1st April 2022
In adapting to the threat of having its foreign exchange reserves frozen, the People’s Bank is likely to shift more of its portfolio into unconventional alternatives, including EM sovereign debt and real assets. But as long as the PBOC wants to continuing …
Largest hit to industrial activity in two years The Caixin manufacturing index published today fell under 50 last month as measures to contain the latest virus outbreak weighed heavily on industry and, taken together with the official survey published …
Efforts to stabilise China’s financial markets have been a short term success. Although in aggregate March was one of the worst months on record for portfolio outflows from onshore markets, there were signs of a shift after Vice Premier Liu He’s promise …
31st March 2022
The biggest hit since Wuhan The surveys add to growing evidence of a large blow to service sector activity amid the latest virus surge. The hit to industry looks to have been much more modest. But even so, the economy is in the midst of its most abrupt …
Current wave yet to be brought under control Daily new domestic virus cases have rebounded over the past week and are now back near the peak of 5,154 hit on 14 th March. This is largely due to mass testing finding hidden infections. 10 days ago, 32% of …
25th March 2022
Our China Activity Proxy (CAP) suggests that the economy started the year on a stronger footing than it ended 2021. But these gains are already being derailed by China’s worst virus outbreak since Wuhan. The CAP is our attempt to track the pace of growth …
22nd March 2022
Liu He’s promise on Wednesday of more market-friendly policies triggered a surge in domestic and offshore Chinese equities along with talk of capitulation on key elements of policy. The market bounce makes sense from a short-term perspective. Liu is the …
18th March 2022
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