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Core inflation continues to ease Consumer price inflation rose to a 29-month high in September and is now scraping up against the government’s preferred ceiling of 3%. But this was due to a rise in food inflation that is likely to prove temporary. With …
14th October 2022
There is no prospect of China lifting its zero-COVID policy in the near future and it probably won’t happen before the end of 2023. If the leadership did want to transition to living with the virus, it would first have to raise the vaccination rate of …
13th October 2022
Policy support starts to gain traction Credit growth surprised to the upside last month, edging up thanks to official efforts to boost lending via policy banks. But wider appetite for borrowing still appears depressed, which will probably keep credit …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Our economists discussed what to expect from the Party Congress and answered client questions in an online Drop-In. The recording can be viewed here . The Party Congress will deliver a major reshuffle of China’s leadership but, with General Secretary …
Our annual Spotlight series this year looks at the implications of the “fracturing” of the global economy that we believe is being caused by the re-emergence of geopolitics as a driver of policy. The key divide is between China and the West. Events at the …
7th October 2022
No sign of FX sales, but PBOC pushing back in other ways The decline in China’s foreign exchange reserves appears to be due to valuation effects rather than direct intervention in the FX market. But we still think the PBOC will try, and may well succeed, …
It has been five years since the People’s Bank last dipped into its own foreign exchange reserves on a significant scale to support the currency. Since then, it is widely believed …
3rd October 2022
Mortgage rate floor relaxed, LPR cuts now less likely After being slashed this year, mortgage rates in most cities are now at the regulatory floor which, for first-time buyers, is currently set at 20 basis points below the five-year loan prime rate …
30th September 2022
Industry and services both take a hit The surveys suggest that China’s economy continued to lose momentum in September, with the global downturn weighing on exports and virus disruptions dealing a fresh blow to services activity. While the latter should …
Our China Activity Proxy (CAP) suggests that virus disruption and cooling exports caused the economy to stagnate in August. September was likely worse and there is little upside in the near-term. The CAP is our attempt to track the pace of growth in …
28th September 2022
Some progress in restarting stalled projects Back in July, homeowners banded together en masse and refused to repay mortgages on presold homes in projects where construction had stalled. This sent shockwaves through the housing market, further …
23rd September 2022
The outlook for China’s economy has deteriorated recently, but it still doesn’t look like the PBOC will ease policy much in response. We suspect that if the central bank were to have a change of heart, it would be quite disruptive to the country’s …
16th September 2022
PBOC trying to loosen without triggering renminbi The onshore renminbi weakened past 7/$ for the first time in two years today. Recent currency weakness has clearly put the PBOC on edge. It has been pushing back via the daily fixing. The exchange rate …
Economy to stay weak amid zero-COVID and property woes China’s economy held up slightly better than anticipated last month, but momentum still weakened relative to July amid renewed virus disruptions and factory closures due to power shortages. September …
Economy set to remain weak due to zero-COVID and property woes China’s economy held up slightly better than anticipated last month, but momentum still weakened relative to July amid renewed virus disruptions and factory closures due to power shortages. …
Frozen in the headlights Early indicators suggest that China’s economy was even weaker in August than it was in July, when the rebound from the Shanghai lockdown prematurely fizzled out. And constraints faced by policymakers – some they have little …
9th September 2022
Credit growth depressed and likely to remain so There was a further deceleration in credit growth last month, with a new wave of lockdowns adding to the problems in the housing market that have been hitting credit demand. Credit growth will continue to …
Inflation set to remain below government’s ceiling this year Consumer price inflation fell in August and remains below the PBOC’s preferred ceiling of 3%, leaving room for the Bank to ease policy further. Meanwhile, producer price inflation declined to …
Inflation will remain below government’s ceiling this year Consumer price inflation fell in August and remains below the PBOC’s preferred ceiling of 3%, leaving room for the Bank to ease policy further. Meanwhile, producer price inflation declined to its …
More suggestions of PBOC intervention A sizeable fall in the value of China’s foreign exchange reserves in August may be further evidence of the PBOC pushing back against the slide in the renminbi. If the currency were to breach 7 to the dollar, this …
7th September 2022
Exports weaker than expected China’s export volumes fell last month by the most since March. Partly, this was due to the backlog of orders that built up during Shanghai’s lockdown having been cleared and ports returning to normal operations. But there was …
Exports drop back amid cooling global demand Export volumes fell by the most since March in a sign that slowing global growth and the normalisation of consumption patterns is starting to weigh on demand for Chinese goods. In contrast, there was a slight …
COVID-19 rears its head again Virus cases have fallen back over the past few weeks as the large outbreak on Hainan island has come under control. But that masks a rapidly deteriorating situation nationwide, with 44 cities now undergoing outbreaks, …
2nd September 2022
More signs that growth has stalled The larger-than-expected drop in Caixin manufacturing PMI was more significant than the slight rise in the official PMI, suggesting that downward pressure on industry intensified last month . There is more pain on the …
1st September 2022
More signs that growth has stalled The larger-than-expected drop in Caixin manufacturing PMI was more significant than the slight rise in the official PMI , suggesting that downward pressure on industry intensified last month. There is more pain on the …
The renminbi has weakened 2.5% against the US dollar since mid-August and is nearing our year-end forecast of 7.00/$. This is mostly a reflection of broad dollar strength – the …
31st August 2022
Recovery continues to lose steam The official PMIs show a further loss in economic momentum this month as the reopening boost waned and the property downturn deepened. We continue to think the economy will struggle to make much headway during the coming …
Lots of talk, not much action There has been a raft of policy announcements during the past week. Last Friday, officials unveiled a scheme to channel financing to developers. On Monday, the Loan Prime Rates were lowered. And on Wednesday, the State …
26th August 2022
We expect the PBOC to follow its recent policy rate cuts with further easing over the months ahead. This informs our decision to lower our forecasts for China’s 10-year government bond yield. But we don’t think further rate cuts, of the scale we …
24th August 2022
Our China Activity Proxy (CAP) suggests that the economic rebound following the hit from lockdowns had petered out in July. And despite increased policy support, growing headwinds will continue to weigh on the economy during the remainder of the …
22nd August 2022
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to support the faltering economy. We expect additional easing to follow in the coming months, but policymakers still appear reluctant to engineer a …
PBOC extends lifeline to struggling economy Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to support the faltering economy. We expect additional easing to follow in the coming months, but …
Hit to hydro putting pressure on coal supplies Southwest China is currently experiencing power shortages due to a severe drought and heatwave. Officials in Sichuan province and Chongqing municipality have responded by ordering week-long halts to factory …
19th August 2022
China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor. Virus outbreaks are happening with increasing frequency. The housing market remains in a downward spiral. And exports look set to drop back before long. To make …
18th August 2022
Recovery stalls on weakened property sector The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector. We think the …
15th August 2022
The People’s Bank (PBOC) has cut its policy rates in response to a loss of economic momentum. A cut to the Loan Prime Rate (LPR) later this month is now a given and we expect additional easing measures further ahead, though it’s far from clear that this …
PBOC inflation concerns add to policy constraints The People’s Bank (PBOC) published its quarterly monetary policy report on Wednesday. It struck a less relaxed tone on inflation. While the PBOC still expects only a modest rise in CPI this year, in line …
12th August 2022
Credit growth held back by mortgage boycotts Credit growth dropped back last month, with property market jitters weighing on bank lending. It may continue to disappoint in the near-term given that sentiment among homebuyers is likely to stay weak and …
Underlying inflation is still low Consumer price inflation rose to a 24-month high in July and is now nearing the government’s target of 3%. But that is still very low by global standards, and we think headline inflation is close to a peak and will drop …
10th August 2022
Exports still strong but headwinds mounting Exports held up well last month, thanks to a backlog of orders still being cleared. But it won’t be long before shipments drop back on cooling foreign demand. Meanwhile, imports continued to trend down, pointing …
8th August 2022
Taiwan has dominated the headlines this week, with Nancy Pelosi’s visit triggering Chinese military drills and restrictions on cross-strait trade. These moves appear largely symbolic. China’s bans on exports of natural sand and imports of some Taiwanese …
5th August 2022
The trade sanctions introduced by China on Taiwan in retaliation for the visit of Nancy Pelosi are small in scope rather than serious efforts to force Taipei to shift course. China is constrained in the economic pressure it can exert unless it is willing …
3rd August 2022
China’s leadership has options other than invasion to coerce Taiwan to submit to its political control. The immediate economic and financial ramifications would differ in each case. But any scenario that upset the existing cross-Strait balance would come …
2nd August 2022
Economic recovery to remain tepid Hong Kong’s GDP ticked up last quarter as the easing of virus restrictions boosted consumption. But the recovery was muted, held back by a drop in exports. We think growth will remain weak given rising interest rates, …
1st August 2022
Rebound slows as manufacturing sputters The surveys suggest that China’s economic recovery slowed in July as the one-off boost from reopening faded. It is consistent with our view that activity will remain below trend in the coming quarters. The official …
