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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
Controlled easing The Central Economic Work Conference that we wrote about a week ago concluded today with a statement that called on “all parties to actively launch policies that are conducive to macroeconomic stability.” Whereas July’s RRR cut wasn’t …
10th December 2021
A turn in the credit cycle Broad credit growth edged up for the first time in nine months in November. Given increased policy support we think the recent slowdown in lending has come to an end. But we think officials will seek to avoid a sharp rebound in …
9th December 2021
Food aside, price pressures are easing Consumer price inflation rose above 2% for the first time in over a year last month. But this was almost entirely due to food prices. Core inflation remains subdued and producer prices have levelled off. CPI rose …
Shipments strengthen but Omicron injects uncertainty Exports and imports beat expectations last month thanks to stronger demand and easing semiconductor shortages. In the near-term, the emergence of the Omicron variant is likely to support demand for …
7th December 2021
The People’s Bank (PBOC) has just announced a cut to the required reserve ratio (RRR) for most banks, shortly after Premier Li and the Politburo each separately hinted at an increase in policy support. There is already evidence of fiscal easing, and we …
6th December 2021
CEWC to discuss policy easing amid slowdown China’s leadership will gather soon for the Central Economic Work Conference (CEWC), an annual meeting that sets economic targets and policy priorities for the coming year. The discussions are private but a …
3rd December 2021
Industry improves but rebound likely to prove temporary The Caixin manufacturing index published today slipped under 50 last month on the back of softer domestic demand. This contrasts with the official survey released yesterday. Taken together, the …
1st December 2021
Easing power shortages provide temporary boost to industry The official PMIs suggest that industrial activity rebounded this month thanks to easing disruptions from power shortages while a renewed virus flare-up held back the recovery in services. And …
30th November 2021
The global spread of a more transmissible COVID variant is a particular challenge for a country trying to remain COVID-free. But after nearly two years of success suppressing infections domestically (see Chart 1), the bar to changing course before better …
29th November 2021
B.1.1.529 and China The median analyst expectation, according to Consensus Economics, is for China’s exports to rise a further 5% next year, when measured in dollars. Some are expecting another double-digit gain. We are the only analysts on the survey …
26th November 2021
Our China Activity Proxy (CAP) shows that growth ticked up last month as energy shortages eased and the service sector continued to recover from virus disruptions over the summer. But the rebound remains lacklustre, with output still well below June’s …
24th November 2021
The Loan Prime Rate (LPR) remained unchanged for the 19th consecutive month today. But officials are already easing policy in other ways, such as by relaxing constraints on mortgage lending. The PBOC has also pushed down bank funding costs via recent …
22nd November 2021
Lighter touch succeeds in controlling virus flare-up China’s latest COVID-19 outbreak appears to be coming to an end, with new cases dropping back sharply during the past week. (See Chart 1.) This removes one recent headwind to service sector activity – …
19th November 2021
New home sales have dropped by a fifth since March, a similar-sized slump to those seen during the previous two housing downturns. With policy now turning more supportive, high-frequency data suggest that sales are bottoming out and a cyclical rebound …
Disruption in industry eases as energy shortages dissipate Industrial growth rebounded last month as energy shortages eased. But this pick-up is likely to be short-lived given the deepening downturn in property construction. And while retail sales also …
15th November 2021
Developers don’t depend on dollar bonds This week’s surge in yields on dollar bonds is not a good measure of the stress facing Chinese developers. Bonds issued offshore (including in Hong Kong) made up only 9% of outstanding developer debt last quarter . …
12th November 2021
Slowdown in credit growth may be over Broad credit growth levelled off in October having previously decelerated to its slowest pace since December 2005. There are some signs that PBOC policy is turning more supportive in response to strains in the …
10th November 2021
Factory gate inflation reaches another high Producer price inflation continued to surge and reached a new high last month. But this largely reflects temporary disruption in a handful of industries from energy shortages, which are already easing. There are …
