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GDP target RIP It turns out that GDP growth targets aren’t such a big deal after all. The Politburo yesterday said that only “provinces that are in a position to do so” need hit their targets this year. And it signalled that no major new stimulus measures …
29th July 2022
This Update was originally sent to clients as a Rapid Response immediately after the readout of the Politburo’s quarterly meeting on economic affairs was published by state media. The readout of the Politburo’s quarterly meeting on economic affairs has …
28th July 2022
Overview – Activity has bounced back from lockdowns but China’s economic recovery will become more challenging from here on as exports turn from tailwind to headwind and the property downturn deepens. Policy restraint means that stimulus will not fully …
The mortgage boycotts are a double threat to developers and to the housing market. They have drawn attention to the problem of cash-strapped developers being unable to complete properties that they have already sold, which is putting off new homebuyers. …
27th July 2022
Developers likely to remain under pressure Last week, we discussed the threat to the housing market from the growing number of home-buyers halting their mortgage payments on uncompleted properties. Those boycotts have expanded and now affect at least 319 …
22nd July 2022
Our China Activity Proxy (CAP) suggests that the economic hit from lockdowns had largely reversed in June. But infection numbers are ticking up again. And even if another large-scale virus wave is avoided, problems in the property sector and headwinds to …
21st July 2022
Even weaker than meets the eye The statistics bureau claim that output in Q2 was slightly higher than a year ago. That’s implausible even accounting for the strong rebound shown on the monthly data for June. The official GDP data acknowledge that the …
15th July 2022
Mortgage boycotts bode ill for housing market Homebuyers across China are banding together to pause mortgage payments in response to construction delays on presold apartments. These mortgage boycotts have spread rapidly in the past week, affecting over …
Imports slump, exports jump Import volumes fell to a three-year low last month, pointing to continued weakness in China’s construction sector. Exports rebounded strongly as shipping bottlenecks eased. But we think this may be the last hurrah for China’s …
13th July 2022
Credit growth is only creeping higher A further slight pick-up in credit growth last month was given a big helping hand from government bond issuance as local governments were instructed to issue their annual allocation of bonds by the end of June. That …
11th July 2022
Late last month, Xi Jinping reaffirmed the goal of achieving “around 5.5%” GDP growth for the year. The economy grew 4.8% y/y on the official figures in Q1 so faster growth is needed, on average, over the rest of the year. But it is almost certain that …
8th July 2022
Policymakers are reportedly bringing forward some planned government bond issuance from next year to support infrastructure investment in the second half of 2022. This will help avert the slump in investment that was imminent without new funding and …
Spending on high-tech “new infrastructure” should result in higher returns than adding more highways and railway lines. But it is not as effective a channel for cyclical policy stimulus. And a state-led push into these new, complex sectors won’t deliver …
7th July 2022
PBOC survey reveals looser lending controls Although changes to interest rates and reserve requirements attract more attention, the main determinants of the pace of bank lending in China are quantitative controls such as loan quotas and window guidance. …
1st July 2022
Output jumps but demand growth still subdued The Caixin manufacturing PMI hit a 13-month high in June and points to a jump in output as virus restrictions were lifted and supply chain conditions improved. But it still points to subdued demand growth and …
Robust services rebound amid easing restrictions The official PMIs point to a surprisingly rapid recovery in services activity this month after virus restrictions were mostly lifted. But this likely reflects a one-off boost from reopening and we doubt …
30th June 2022
The Omicron virus wave in China appears to have eased global shipping bottlenecks rather than worsened them as many had feared. Firms were able to re-route shipments through other ports to avoid disruption in Shanghai. And weaker goods demand domestically …
28th June 2022
Getting back to normal China’s economy began to rebound in May as lockdowns were gradually lifted. But many consumers stayed home and activity remained depressed, especially in the service sector. There has been a more substantial improvement in mobility …
24th June 2022
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
