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Strength in exports persists but will reverse before long Exports continued to soar last month while imports took another leg down despite directives to raise coal supply amid power rationing. As a result, the trade surplus reached its highest level since …
8th November 2021
Widening outbreak adds to downside risks China’s latest COVID-19 outbreak worsened this week, with daily cases rising above 100. (See Chart 1.) Cases have now been detected in 20 provinces, threatening widespread disruption as officials across the country …
5th November 2021
City narrowly avoids another recession Hong Kong’s economy largely treaded water last quarter, with weaker exports and investment meaning the rebound from Q2’s downturn was much more tepid than expected. The pace of recovery is likely to remain muted in …
1st November 2021
Supply disruptions still weighing on industry The manufacturing PMIs diverged again this month. But the big picture is that power rationing and supply shortages continued to constrain output and push up prices. The Caixin manufacturing PMI continued to …
China’s currency has strengthened markedly since the middle of 2020. And while its gains against the US dollar have levelled off this year, it has continued to appreciate in trade-weighted terms, recently hitting its strongest level since 2016. Over the …
29th October 2021
Despite a flurry of media reports in September hinting at widespread disruption, the data suggest that China’s recent power shortages have not been too severe. Electricity output actually rose 0.6% in seasonally-adjusted m/m terms last month, the fastest …
Overview - The economy slowed sharply in Q3. Weakness in services is already reversing as virus controls have been relaxed again. But industry and construction are on the cusp of a deeper downturn that could pull down China’s growth to just 3% next year. …
26th October 2021
Our China Activity Proxy (CAP) shows that output rebounded last month as the disruption to the service sector from virus outbreaks eased. But this wasn’t enough to prevent a sharp contraction last quarter. And even if services activity holds up better …
25th October 2021
We’ll publish our quarterly China Economic Outlook next week. Since the last edition , exports have performed better than we’d expected but this didn’t make up for the disruption caused by measures to contain the Delta variant outbreak in August. That …
22nd October 2021
The Loan Prime Rate (LPR) remained on hold for the 18th straight month today. And investors have recently pared back their expectations for monetary easing. But given growing economic strains, especially in the property sector, we still think the PBOC …
20th October 2021
China’s rebound falters In q/q terms, official GDP growth slowed to a crawl last quarter. And our China Activity Proxy points to a sharp contraction. Although some of the recent weakness in services is now reversing, industry and construction appear on …
18th October 2021
Just how bad are things? There remains an unusual amount of uncertainty about China’s economic performance in September. The PMIs are less helpful than usual as the surveys were conducted prior to the disruption from power rationing late in the month. …
15th October 2021
Factory-gate inflation hits a new record Producer price inflation reached a new high last month due to the surge in global coal prices. There are few signs that this is feeding through to higher output prices of consumer goods, however. The overall …
14th October 2021
Credit growth at its slowest in 15 years Broad credit growth continued to slide in September and is now at its slowest pace since December 2005. We think credit growth will level off in the coming quarters, as PBOC policy turns more supportive in response …
13th October 2021
Strong exports ease power rationing concerns September exports beat even our above-consensus expectations. Coupled with separate data showing that electricity consumption held up well last month, this suggests that the hit from power rationing has largely …
One measure of the dislocation of global trade is that container ships with capacity for a million twenty-foot containers are sitting idle off China’s ports. (See the trade data preview below.) The power cuts that began to affect industry at the end of …
8th October 2021
Local governments in China are far less reliant on land sales as a source of revenue than is often claimed. While slowing real estate development will create a funding gap, it could be more than offset with a modest property tax. It’s a common refrain …
5th October 2021
No major pullback in power supply last month Early data suggest that recent electricity rationing may be the result of power companies being unable to keep up with the strength of demand, rather than a substantial pullback in electricity supply. According …
1st October 2021
We still don’t have enough data to judge the extent of the disruption to China’s factory output from power rationing with much certainty. But with supply chains already stretched, even a modest hit to output, which producers downstream might normally …
30th September 2021
Industry softer ahead of power shortages The manufacturing PMIs diverged this month. But the big picture is that industry was coming off the boil even prior to the latest power shortages. On a more upbeat note, the official surveys point to a sharp …
China’s power shortages are a reflection of the global strain in energy markets and won’t be resolved overnight. Power rationing will constrain industrial activity until demand weakens enough to bring the domestic electricity market back into equilibrium. …
29th September 2021
Our China Activity Proxy (CAP) suggests that economic output dropped back sharply in August. The big hit to services activity from efforts to contain the Delta variant should mostly reverse this month. But the downturn in the property sector has further …
27th September 2021
We think that the renminbi’s period of remarkable calm will end before long, and that it will depreciate against the US dollar over the next few months. This year, the USD/CNY exchange rate has not traded more than ~2% away from where it was at the start …
24th September 2021
A matter of time before Evergrande defaults Evergrande failed to pay a $83.5mn coupon on an offshore bond due at noon today in Hong Kong (midnight Thursday in New York). It now has a 30-day grace period to make the payment before the company is in …
If, contrary to our opinion and the consensus, a collapse of Evergrande ends up having a significant impact on the rest of the world, it will be because it first causes either major financial dislocation within China or a property-led slump in China’s …
22nd September 2021
With a couple of exceptions, most major developers are in a much stronger financial position than Evergrande and should be able to weather a temporary spike in their borrowing costs amid contagion fears. Successfully navigating the structural decline in …
If Evergrande were to cause a financial or economic shock it would either be because policymakers failed to contain financial contagion or because the company’s collapse precipitated a much bigger decline in construction activity than most investors …
Commercial banks left the Loan Prime Rate (LPR) on hold for a 17th consecutive month today. But with the economy losing steam and concerns around the property sector growing, we think policy rate cuts by the PBOC could come as soon as next month. The …
Not just Evergrande Evergrande has been in deep trouble for a long time. But it is fitting that the systemic risks posed by its collapse raised it to the top of global market concerns this week, exactly 13 years after Lehman Brothers’ demise. In the past …
17th September 2021
China and countries that align more closely with it than with the US together account for around half of the world’s population. But the China bloc is far smaller economically than the US bloc and far more dependent on the rival bloc as a source both of …
The root of Evergrande’s troubles – and those of other highly-leveraged developers – is that residential property demand in China is entering an era of sustained decline. Relaxation of regulatory controls on the sector wouldn’t change this fundamental …
15th September 2021
Delta wave hit bigger than expected The hit to service activity from last month’s virus outbreak was even larger than we, and other forecasters, had anticipated. The rest of the economy held up better, although the headwinds facing the property sector …
Credit growth at its slowest in 32 months Credit growth dropped in August to its slowest pace since December 2018. With the PBOC now shifting gears to a slightly more supportive stance, credit growth may level off in the coming quarters. But the usual …
10th September 2021
Gauging the scale of Evergrande credit risks If Evergrande collapses we think that policymakers will seek to protect homebuyers but allow other creditors to take losses. How large might the hit be? The good news is that Evergrande has cut its debt since …
Evergrande’s collapse would be the biggest test that China’s financial system has faced in years. Policymakers’ main priority would be the households that have handed over deposits for properties that haven’t yet been finished. The company’s other …
9th September 2021
Factory-gate inflation hits a 13-year high Producer price inflation reached its highest since August 2008 last month due to the rally in global commodity prices. But the breakdown suggests that upward pressure on the factory-gate prices of consumer goods …
Current strength unlikely to last Exports and imports were much stronger than anticipated last month thanks to buoyant demand, even as the data point to some lingering supply shortages. We continue to think shipments will soften in the coming quarters …
7th September 2021
Taking stock after the summer It’s increasingly hard to keep up. In rough chronological order, during the last three months restrictions have been placed on foreign IPOs; tech firms have been hit with anti-monopoly investigations and legislation, as well …
3rd September 2021
Industry falters amid hits to both supply and demand The Caixin manufacturing index dropped to an 18-month low in August, adding to signs from the official PMI released yesterday that industry is coming off the boil. The surveys point to worsening supply …
1st September 2021
A WeChat post by a prominent blogger voicing support for Xi Jinping’s “ common prosperity ” campaign has been widely re-published by state media, giving it a rare seal of Party approval. The post argues that the recent regulatory crackdown is just the …
31st August 2021
Delta wave hit services hard The latest surveys suggest that China’s economy contracted last month as virus disruptions weighed heavily on services activity. Industry also continued to come off the boil as supply chain bottlenecks worsened and demand …
Pandemic boom in home sales unwinding Embattled developer Evergrande this week reported a loss in its core property business during H1, the first time the unit hasn’t turned a profit since the company’s 2009 listing in Hong Kong. The firm said lower …
27th August 2021
Our China Activity Proxy (CAP) suggests that output dropped back further in July. This shouldn’t be dismissed as a temporary setback due to the recent virus outbreak. The main drag last month came from industry and construction, where the key headwinds …
24th August 2021
August shaping up to be even weaker than July The July activity and spending data published on Monday came in much softer than expected, adding to mounting concerns about China’s growth outlook. The August data look set to be even weaker given that the …
20th August 2021
Commercial banks left the Loan Prime Rate (LPR) on hold for a 16th straight month today. But with the economy losing momentum, we think it won’t be long before the PBOC is guiding rates lower. Even so, another round of large-scale credit-led stimulus …
China’s leadership has signalled a growing focus on reducing inequality. This could boost the productivity of low-income households and speed up the long-touted rebalancing toward consumption. But, if taken too far, it risks dampening the competitive …
19th August 2021
Not just about Delta wave disruptions There was a broad-based slowdown in all the key indicators last month. This partly reflects disruptions to consumer activity due to the recent virus flare-up and flooding in central China. But investment spending and …
16th August 2021
There are tentative signs that China’s Delta wave has broken. New symptomatic cases have dropped back below 100. And only 52 domestically-transmitted cases were identified yesterday (including non-symptomatic cases found during mass testing). If the …
13th August 2021
The slowdown in credit growth resumes After stabilising in June, broad credit growth resumed its downward trajectory in July and is now at its slowest since February last year. We expect the slowdown and resulting headwind to the economy to continue in …
11th August 2021
Underlying price pressures swamped by pork price slump Rising factory gate prices for electronics products signal that supply chains are still tight but, with both semiconductor imports to China and China’s exports of electronics rising over the past …
9th August 2021
