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The Q1 industrial profits data published this week were very strong. Net profits continued rise rapidly and are now 50% higher than they were two years ago. Only a third of this is due to higher sales. Instead, the bulk of the increase has come from …
30th April 2021
Not falling, as far as we know The statistics bureau issued a terse statement on Thursday that “According to our understanding, China’s population continued to grow in 2020.” This rather diffident rebuttal of Tuesday’s FT story only increases anticipation …
A weaker start to Q2 The latest surveys suggest that growth edged down this month. Supply-side disruptions appear mostly to blame for a slower rise in manufacturing output. But there are also signs of a demand-led slowdown in construction and services. …
Download the pdf for the full Outlook Overview – After treading water in Q1, activity should pick up again this quarter following the relaxation of domestic travel restrictions. But growth will be more modest than most expect over the next couple of years …
28th April 2021
China’s census has revealed the first population decline since the Great Leap Forward, according to the FT. If this is confirmed and the beginning of a trend, China’s challenge in sustaining rapid long-run economic growth has become even harder. While …
27th April 2021
Our China Activity Proxy (CAP) suggests that growth picked up last month as virus containment efforts were lifted. But this wasn’t enough to prevent a marked slowdown in q/q growth last quarter. With the export boom running out of road and the prop from …
26th April 2021
A window onto the service sector The detailed sectoral GDP data for Q1 were published over the weekend. The breakdown of services activity is particularly useful as it provides a view over parts of the economy that aren’t captured by high-frequency macro …
23rd April 2021
Commercial banks left the Loan Prime Rate (LPR) on hold today. Given that official efforts to rein in credit are being achieved by other means, we do not expect any changes to policy rates in the coming months. The one-year LPR was unchanged at 3.85% …
20th April 2021
Flattering base effects mask sharp slowdown China’s GDP growth jumped to a record high in y/y terms last quarter. But this was entirely due to a weaker base for comparison from last year’s historic downturn. In q/q terms, growth dropped back sharply and, …
16th April 2021
Default risk spreads to financial bonds Bonds issued by Huarong Asset Management, China’s largest distressed debt manager, have seen their price plunge recently after the firm delayed the publication of its 2020 results, reportedly due to significant …
Imports at record high, exports soften a touch Export and import growth remained elevated in y/y terms last month, even as base effects turned slightly less favourable. In level terms, exports dropped back slightly but imports continued to rise thanks to …
13th April 2021
Credit growth resumes its downward trajectory After an uptick in February, the slowdown in credit growth resumed in March. Hawkish signals in the government’s work report suggest that the deceleration will continue as policymakers focus on reining in …
12th April 2021
PBOC moves to slow credit growth The readout from the latest PBOC Monetary Policy Committee meeting struck a dovish tone. In particular, a pledge to lower real lending rates means readers could be forgiven for thinking that the central bank is still in …
9th April 2021
Factory gate prices jump by most in four years Consumer price deflation reversed last month due to a jump in fuel prices and an uptick in core inflation. But evidence of intensifying price pressures was clearest in producer price inflation, which was the …
Consumer boycotts of foreign brands in China are nothing new but they have become more frequent . A dataset produced last year by the Australian Strategic Policy Institute (ASPI) identified 57 acts of what it calls “coercive diplomacy” in 2019, more than …
1st April 2021
China’s vaccination campaign has accelerated sharply over the past week. The daily pace of vaccination is now only just short of the five million needed to hit the target of inoculating 40% of the population by the end of June. (See Chart 1.) The …
Unofficial survey paints a less upbeat picture After yesterday’s strong set of Official PMI data, the Caixin manufacturing index published today disappointed, falling to an eleven-month low. Taken together, the surveys are consistent with a slight pick-up …
Growth bounce not sustainable The latest surveys suggest that after being hit by virus disruptions earlier in the year, activity bounced back strongly this month. But we suspect it won’t be long before growth is slowing again. The official manufacturing …
31st March 2021
PBOC may stop short of formalizing tighter policy We had expected the PBOC to start hiking its policy rates this quarter given the strong economic backdrop. By the end of last year, output had rebounded well above trend and while headline y/y inflation …
26th March 2021
The renminbi has gained 9% against the US dollar since last May. But the factors that underpinned this appreciation have faded. With US yields moving in the dollar’s favour and China’s economic outperformance set to diminish, we now expect the renminbi to …
Our China Activity Proxy (CAP) shows a surge in year-on-year growth at the start of 2021. But the picture is more mixed after accounting for favourable base effects. Buoyant foreign demand boosted industry but travel restrictions held back services …
24th March 2021
China’s statutory retirement ages are low. Raising them, as the Five-Year Plan proposes, would make the pension system more affordable but it wouldn’t make an appreciable difference to the ongoing decline in the size of the workforce. Most older workers …
23rd March 2021
Commercial banks left the Loan Prime Rate (LPR) unchanged today. We have been forecasting the PBOC to hike rates this year but the likelihood of that is diminishing – the PBOC appears to favour quantitative controls on lending instead. Either way, credit …
22nd March 2021
Decoupling is Made in China too The acrimonious meeting in Alaska underlines that a new US administration has not led to a reset of US-China relations. China’s government had apparently hoped that some Trump-era sanctions might be rolled back as a …
19th March 2021
The 14 th Five-Year Plan makes clear that self-sufficiency has grown as a priority for China’s leadership. But it is light on specifics. The details will probably be fleshed out in the raft of industry-level plans that usually follow its publication. But …
Travel restrictions weigh on consumption, boost industry Economic growth surged in y/y terms in January and February. But the picture is more mixed after accounting for favourable base effects. Travel restrictions weighed on retail sales but boosted …
15th March 2021
China’s new policy blueprint seeks above all to promote a large and hi-tech manufacturing sector, both as a defence against decoupling by the West and as a source of productivity gains. Policymakers are pinning their hopes on rapid domestic innovation to …
The National People’s Congress ended yesterday. From an economic perspective, the key outcomes were the budget and policy targets for 2021 which we discussed here and the Five-Year Plan, which we’ll publish a Focus on shortly. (We’re also holding a …
12th March 2021
A pause in the credit slowdown After four months of consecutive declines, broad credit growth accelerated in February. But we think the slowdown in lending will resume before long given the hawkish signals out of the National People’s Congress (NPC). This …
10th March 2021
Consumer price deflation unlikely to persist A drop in food inflation caused by shifts in the timing of the Lunar New Year meant that headline consumer price inflation remained in negative territory last month. That said, broader price pressures continued …
Exports benefit from overseas lockdowns and domestic travel restrictions Export and import growth surged in y/y terms in January and February. Even accounting for favourable base effects, shipments look strong. Exports continued to be buoyed by …
8th March 2021
The reports delivered at today’s opening of the National People’s Congress (NPC) confirm that with the COVID-19 downturn now in the rear-view mirror the focus of China’s leadership has shifted away from shoring up near-term growth towards putting the …
5th March 2021
The National People’s Congress will convene today and reveal the government targets and priorities for 2021, along with the annual budget and 14 th Five-Year Plan. We will publish an Update with our initial analysis once the key details have been made …
The 14 th Five-Year Plan should provide a revealing view of the key challenges that China’s leadership believes it faces. High among them is a more hostile global environment. In the economic sphere, this will be reflected in calls to raise …
3rd March 2021
Spring Festival restrictions failed to lift industry The latest manufacturing surveys suggest that factory activity didn’t receive the boost we had anticipated from travel restrictions over the Spring Festival. Nevertheless, we think activity will remain …
1st March 2021
The National People’s Congress that starts on Friday is the stage on which the government sets out its economic plans. There are a few things to focus on. Withdrawal of fiscal support The budget presentation (also on Friday) is likely to confirm that the …
26th February 2021
Incoming data continue to point to strength in domestic activity, spending and revenues. Yet strains in China’s corporate bond market continue to grow, with the value of defaults hitting all-time highs. (See Chart 1.) This underlines the degree to which …
25th February 2021
Hong Kong has curtailed some of last year’s emergency spending but today’s budget signals that fiscal policy remains loose. There is room to do more, but the key determinant of the economic outlook is not in the financial secretary’s remit: it hinges on …
24th February 2021
Commercial banks left the Loan Prime Rate (LPR) unchanged on Saturday. But monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months. The …
22nd February 2021
Spring Festival spending subdued During the last sexagenary cycle of China’s lunisolar calendar, Years of the Ox were by some way the weakest for GDP. (See Chart 1.) 2021 will be different. The suppression of output during last year’s lockdown means that …
19th February 2021
Our long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But …
18th February 2021
China has again shown its prowess in extinguishing COVID-19 flare-ups: infections were reported in 24 of China’s 31 provinces in January; no new cases of domestic transmission were found anywhere in China this week. The vaccination programme is looking …
11th February 2021
Slip into deflation no cause for concern Headline consumer price inflation returned to negative territory last month, but this was largely due to a shift in the timing of the Lunar New Year. In fact, producer price inflation turned positive for the first …
10th February 2021
Credit growth continues to slow as policy turns less supportive Credit growth in China dropped back further last month due to a broad-based slowdown in both bank and non-bank lending. Credit is likely to continue decelerating as the PBOC focuses on …
9th February 2021
Ant’s days as a freewheeling tech firm are over After years of presenting itself as a tech firm and benefitting from limited oversight, fintech giant Ant Group has reportedly agreed to restructure as a financial holding company (FHC). As a result, it will …
5th February 2021
Industrial rebound shifts down a gear The latest surveys suggest that the pace of expansion in the manufacturing sector slowed in January. But that’s not too surprising given that output was already well above trend – capacity utilisation rates in …
1st February 2021
Lunar New Year travel kicks off with a whimper Yesterday was the first day of what the government calls the “Spring Festival travel season”, which lasts 40 days. During this period, the Ministry of Transport (MoT) publishes daily data on long-distance …
29th January 2021
Recovery sputters due to renewed virus outbreak Hong Kong’s economy was treading water at the end of 2020 as the re-imposition of containment measures weighed on consumption. Unless authorities bring the ongoing outbreak under control soon, the recovery …
Short-term funding costs for banks have risen sharply during the past couple of weeks. The 7-day depository repo rate (DR007), which has been flagged by the PBOC as a key benchmark and focus of monetary policy, jumped over 100 basis points to a two-year …
New restrictions on travel will disrupt Lunar New Year plans for many families in China but they should also reduce the disruption to manufacturing and construction that normally causes output to slump in the first quarter of the year. The new government …
27th January 2021
