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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 …
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
