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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
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
