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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 …
Stronger-than-expected start to 2022 Activity data for the first two months of the year was stronger than anticipated, which probably explains why the People’s Bank (PBOC) unexpectedly kept its policy rates on hold today. But the economy looks set to come …
15th March 2022
A big test for China’s “dynamic clearing” approach Local COVID-19 infections have surged, with over 1000 new cases reported today, the most since March 2020. There are flare-ups across the country, making containment harder and raising the risk of …
11th March 2022
Credit growth disappoints Broad credit growth was much weaker than expected last month, reversing much of the acceleration of the past few months. This suggests that more easing measures will be needed to meet the policy objectives that were recently laid …
Inflation ticks up amid global commodity price shock Chinese inflation picked up last month, though this was masked in the headline figures by base effects. With commodity prices soaring in response to the war in Ukraine, inflation will rise further in …
9th March 2022
The economic plans that have been detailed at the National People’s Congress signal that China’s leadership is expecting much weaker growth this year than the relatively upbeat GDP growth target might suggest. However, it does not appear that policy will …
7th March 2022
Trade surplus won’t stay at record levels for long Trade volumes remained strong last month but are likely to soften over the coming quarters as China’s import-intensive construction sector cools further and rising inflation dampens demand for consumer …
“Experimental opening” will be limited in scope Media reports over the past few days suggest that officials have begun discussing ways to pivot away from a zero-COVID strategy. We’ve argued for some time that China will transition toward living with the …
4th March 2022
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 …
Another lacklustre showing The surveys suggest that the pace of economic growth edged up slightly in February. But it remains weak amid continued supply shortages, higher imported inflation, and persistent disruption to services activity. After declining …
1st March 2022
As well as a geopolitical quagmire for China’s leadership, the Russia-Ukraine conflict has become a headache for the PBOC. It has been signalling its dissatisfaction with the strength of the renminbi in recent months. But the renminbi is one of very few …
28th February 2022
The government will lay out its economic agenda for this year at the annual session of the National People’s Congress (NPC), which kicks off next Saturday. Here are a few pointers on what to expect: Lower growth targets, both explicit and implicit The 14 …
25th February 2022
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
More policy support for homebuyers Back in November, we made the case that policy support would soon drive a rebound in home sales. Policymakers had signalled a shift to a more supportive stance, initially by telling banks to step-up mortgage lending. And …
18th 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
Inflation still not a concern in China Chinese inflation continued to drop back last month. Although there are some signs of supply disruption, we think these will be temporary. Factory-gate inflation should moderate further while consumer price inflation …
16th 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 …
Consumers still holding back Last week we flagged a rise in the number of people travelling during Lunar New Year, which is up 40% compared with a year ago. But data published in recent days suggests this improved mobility has not translated into stronger …
11th February 2022
China made none of the additional purchases it committed to under the Phase One trade deal. The Biden administration isn’t pleased but doesn’t have good options to force China to do more. And China has less incentive to offer concessions than it did a …
10th February 2022
Credit growth hits 6-month high Broad credit growth accelerated for the third consecutive month in January as policy support continued to feed through. With more easing on the horizon we expect this trend to continue for a while. But a sharp pick-up in …
Hong Kong outbreak pushes back reopening hopes In many countries, Omicron outbreaks have burnt themselves out in weeks and inflicted relatively little economic damage. Hong Kong may be different. The city is wedded to a zero-COVID approach in hope of …
4th February 2022
Millions of people traditionally travel across China to spend this evening, the eve of Lunar New Year, with their families. The tradition has been severely disrupted by the pandemic. Last year, amid a flare-up in COVID infections, local governments …
31st January 2022
Economy struggling at the start of 2022 The latest surveys suggest that the pace of economic growth slowed in January due to a combination of weaker foreign demand, cooling property activity and efforts to contain recent outbreaks. We think momentum in …
Economy likely to slip back into contraction this quarter Hong Kong’s economy barely grew in Q4 despite a rebound in goods exports. And with stricter containment measures imposed this month to contain the latest outbreak, we expect an outright contraction …
28th January 2022
R&D spending: more is not always better China has made a strong start toward meeting the R&D targets in the 14 th Five Year-Plan (FYP), which are part of the country’s push to become a global leader in cutting-edge technologies. Data published this week …
Overview - China will be buffeted in the first half of 2022 by COVID outbreaks and a further slowdown in property construction. Policy support should improve the picture later in the year, but mounting structural headwinds will limit the extent of any …
26th January 2022
Our China Activity Proxy (CAP) suggests that China’s economy was still struggling to regain momentum at the end of last year amid troubles in the property sector and recurrent COVID outbreaks which continue to depress service sector activity. We think …
24th January 2022
Policy easing is putting a floor beneath home sales Official efforts to shore up housing demand continued this week, with a 5bp cut to the 5-year Loan Prime Rate (LPR), the benchmark used by banks to price mortgages. A reduction of this size may seem …
21st January 2022
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to push down borrowing costs. We expect additional easing to follow in the coming months, including measures to push down deposit rates. But …
20th January 2022
The People’s Bank (PBOC) has stepped up its efforts to loosen monetary conditions, following up last month’s reduction to the Loan Prime Rate (LPR) with cuts to the rates at which it lends to banks. Another LPR cut this month is now a given and we expect …
17th January 2022
Momentum weak heading into 2022 Official GDP growth beat expectations last quarter and in q/q terms was the strongest since late 2020. But we are sceptical that this reflects the reality on the ground – our China Activity Proxy suggests output was largely …
“Dynamic clearing” hasn’t failed yet It is too soon to conclude – as many seem to have – that Omicron will swamp China’s efforts to suppress COVID. Those efforts are far more forceful than anyone else has tried. The country’s first …
14th January 2022
Shipping disruptions a near-term risk Exports remained strong last month but may soften in the coming months amid growing disruptions at ports. Meanwhile, imports dropped back sharply, consistent with continued domestic weakness, especially in the …
China’s currency was remarkably stable against the US dollar in 2021 and appreciated against other major currencies. But we doubt that trend will continue this year: a slowing economy, monetary policy easing, and a gradual normalisation of China’s current …
13th January 2022
The amount of residential floor space being built in China hit a record last year. With new project starts dropping sharply recently, the government has now unveiled plans to ramp up construction of low-cost rental housing. But this won’t offset the …
Rebound in credit growth underway Broad credit growth picked up again in December amid increased policy support. We think lending will continue to rebound in the coming months although officials are likely to prevent a sharp jump. Chinese banks extended a …
12th January 2022
Inflation pick-up reversing Chinese inflation dropped back last month, consistent with our view that the acceleration in price gains in earlier months would prove temporary. We think factory-gate inflation will continue to moderate going forward and that …
Korea, the Philippines and India are each holding elections this year that will play a role in setting fiscal and structural reform priorities, including the possible introduction of a universal basic income in Korea. And China looks set to tear up the …
10th January 2022
Virus disruption not as bad as last summer After dropping back close to zero during the second half of November, new local confirmed COVID-19 cases have jumped over the past month or so, reaching an 21-month high of 182 last Monday and staying above 100 …
7th January 2022
2022 will be a year of slower growth in China as the property and export sectors weaken and structural constraints loom larger. A desire to keep a grip on credit risks will inhibit the policy response to the slowdown. Xi Jinping’s decision not to step …
5th January 2022
Economic headwinds continue into 2022 The latest surveys suggest that the pace of industrial growth picked up by more than expected last month. This was largely thanks to improving supply chain conditions and lower raw material prices. Meanwhile, services …
4th January 2022
The People’s Bank purchased nearly $6bn in foreign exchange last month, by our estimate. That’s not much in the context of China’s cross-border trade and investment flows. But it was the biggest purchase in six years. Then, earlier this month, while …
22nd December 2021
China’s economy started 2021 above its pre-pandemic path of output, thanks to stimulus and surging global export demand. Our China Activity Proxy (CAP) suggests that the economy is ending the year well below the pre-pandemic path as a boom in construction …
20th December 2021
The People’s Bank has taken another modest easing step with a 5bp reduction to the One-Year Loan Prime Rate, although it kept the Five-Year rate on hold. We expect more easing to follow in the coming months. The one-year rate decreased from 3.85% to …
It is two years since a cluster of cases of severe pneumonia started to draw attention in Wuhan. Chart 1 maps economic developments in China since then. The blue bars show cumulative growth since late-2019. The black outlines show growth over the …
17th December 2021
Virus disruptions and property downturn continue to hold back economy Industry in China continued to rebound last month from disruptions caused by power shortages while the recovery in services activity was held back by renewed virus outbreaks. A new …
15th December 2021