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It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Central government adds to the bond deluge The government and quasi-fiscal entities including LGFVs and policy banks have significantly ramped up borrowing in recent months. To the end of May, only 12% of this was by the central government. But since the …
26th June 2020
China’s exports have held up remarkably well in the face of the sharp slump in global activity. They contracted just 3.3% y/y in US dollar terms in May. The detailed trade data published today show that a large part of that resilience was the result of …
24th June 2020
Commercial banks left the Loan Prime Rate (LPR) on hold today. We may see a cut or two next quarter but most signs suggest that the bulk of monetary easing this cycle has already taken place. The one-year rate was unchanged at 3.85% (the Bloomberg …
22nd June 2020
Bank lending jumped in Q1, to the highest level relative to trend GDP since 2009. And recent data suggest that it has remained very strong this quarter. But comments yesterday by PBOC Governor Yi Gang suggest that bank lending will drop back in the second …
19th June 2020
We were already expecting China’s economy to return to its pre-virus path faster than other major economies and sooner than most forecasters anticipate. But with output already back to year-ago levels, an even swifter recovery now looks likely. Since we …
16th June 2020
Economy no longer contracting year-on-year State-led infrastructure construction jumped last month and pushed up growth in fixed asset investment and industrial production. Meanwhile, growth in services activity turned positive and suggests that overall …
15th June 2020
More signs that a construction boom is building What stood out most in the survey data for May was the official construction PMI, which rose to a nine-month high. The forward-looking components were particularly upbeat. New orders were the highest since …
12th June 2020
Credit growth continues to accelerate A jump in government bond issuance helped push credit growth to a 21-month high in May. The acceleration in credit growth has further to run and will add fuel to the economic recovery. Chinese banks extended …
10th June 2020
Underlying inflation close to bottoming out Consumer price inflation slipped further last month due to falling food prices, while subdued demand continued to weigh on factory gate prices. But food prices aside, the recent decline in inflation could be …
Weak external demand catches up with exports Export growth turned negative last month as lockdowns abroad weighted on global demand. And the ongoing domestic recovery failed to keep import growth from slipping further. A global recovery and further ramp …
8th June 2020
Government spending was subdued at the start of the year, in large part because work on infrastructure projects was disrupted by the COVID-19 lockdown and by the subsequent labour shortages due to the slow return of migrant workers. But now that those …
5th June 2020
Recovery remains steady but slow The PMIs show that the recovery in activity extended into last month and appears to have broadened out into parts of manufacturing that were previously struggling. But there are few signs of a marked pick-up in the overall …
1st June 2020
China’s National People’s Congress (NPC) ended yesterday. The main economic news came at the opening of the event last Friday, when the government laid out plans for the largest stimulus package since 2009 . However, these plans have been overshadowed by …
29th May 2020
The government’s annual work report published on Friday made clear that policymakers will engineer an acceleration in credit growth this year. The report didn’t offer an explicit target for aggregate financing (AFRE), the official measure of broad credit, …
27th May 2020
The fiscal plans unveiled by China’s leadership today are as expansive as those in 2009 but credit growth will remain far more constrained. The focus again is overwhelmingly on measures to boost investment, primarily infrastructure. We expect stimulus to …
22nd May 2020
The move by China’s National People’s Congress (NPC) to impose a new security law on Hong Kong effectively overrides the “one country, two systems” framework that has allowed Hong Kong to prosper since 1997. The move will probably trigger protests and …
This Update summarises the key announcements from the National People's Congress. For in depth analysis, see this Focus . We had anticipated that the National People’s Congress (NPC) would lay out plans for a further ramp up in policy support and it did …
Huawei dispute highlights costs of decoupling The US took further action against China during the past week, including cutting off Huawei from any semiconductor suppliers that use US technology, even if the firms aren’t American. In response, China has …
Commercial banks left the Loan Prime Rate (LPR) on hold today. But the dovish tone of the PBOC’s latest monetary policy report and growing pressure on the central bank to do more, including calls for QE, suggest that this is a pause in, rather than an end …
20th May 2020
Recovery continues but remains highly uneven Industrial output and investment rose year-on-year in April for the first time since the COVID-19 outbreak. But retail sales and services activity continued to contract, held back by high unemployment. Growth …
15th May 2020
Growth target and policy signals After a delay of over two months, the annual meeting of the China’s legislature, the National People’s Congress (NPC), will kick off next Friday. A schedule has yet to be made public but the key events, the annual work …
Factory-gate prices post steepest drop in over a decade Consumer and producer price inflation fell sharply last month, reflecting the continued weakness in demand. Price pressures are likely to ease further in the coming months, strengthening the case for …
12th May 2020
Credit growth hits a 22-month high Credit growth accelerated further last month, a trend that will probably continue given signals from the PBOC’s Q1 monetary report published over the weekend that more stimulus measures are in the pipeline. This will …
11th May 2020
Tourism still in the doldrums China recorded 115 million domestic tourism trips during the Labour Day holiday that ended on Tuesday. This was more than double the 43 million trips during the Qing Ming holiday in early April, a jump that many interpreted …
8th May 2020
Exports can’t defy the global downturn for long China’s exports were much stronger than anticipated in April but are likely to drop back sharply this month. In contrast, the recent resilience of imports faltered in April as inbound shipments began to play …
7th May 2020
Epidemiological success, economic pain Hong Kong’s economy contracted by the most on record last quarter as tourism collapsed, trade flows slowed sharply and social distancing weighed on domestic spending. The city’s GDP fell 5.3% q/q in …
4th May 2020
Recovery remains slow and uneven The official composite PMI was broadly unchanged in April, consistent with a further recovery but at a slow pace relative to the abrupt downturn in February. The breakdown suggests that weak exports led to a slowdown in …
30th April 2020
Recovery remains tepid as weak exports hold back manufacturing The latest survey data shows that renewed weakness in the manufacturing sector was offset by a pick-up in construction and services, leaving the overall pace of recovery broadly unchanged in …
Output from China’s industrial sector rebounded in March, as the government encouraged firms to re-open. But revenues remained much weaker, signalling that demand remained depressed. Inventories surged as a result. (See Chart 1.) Subdued demand is likely …
27th April 2020
In its meeting last week, the Politburo introduced a new slogan: the “Six Ensures” (六保). The first is an instruction to officials to “ensure employment”. On paper, they are doing pretty well. At the end of March only two million people were claiming …
24th April 2020
PBOC continues to align its policy rates This Update was originally sent to clients as a Rapid Response immediately after the Targeted Medium-term Lending Facility was cut on 24 th April 2020. The People’s Bank (PBOC) has cut rates on yet another one of …
The detailed breakdown of China’s Q1 GDP data that was published over the weekend shouldn’t be taken completely at face value. But it still provides a useful framework for gauging the relative performance of different sectors amid the COVID-19 disruption. …
20th April 2020
Commercial banks lowered the Loan Prime Rate (LPR) today in response to last week’s policy rate cut. With economic conditions still weak, we expect further rate declines in the coming months. The one-year rate fell from 4.05% to 3.85% (both the Bloomberg …
GDP likely to remain below 2019 levels in Q2 The main event this week was the release of the Q1 GDP figures, which showed a 6.8% y/y fall in output, the first contraction since quarterly GDP figures were first published in 1992. We covered the data in …
17th April 2020
China faces slow recovery from first contraction on record GDP contracted in Q1 for the first time since China began publishing quarterly data in 1992, though we suspect that the slump in output was even deeper than officials claim. The monthly data …
Overview – After the deepest downturn since the Cultural Revolution in Q1, China’s economy will return to growth this quarter. But with labour market strains holding back domestic demand and external headwinds intensifying, output is still set to contract …
15th April 2020
The People’s Bank (PBOC) has taken yet another step to help banks and borrowers weather the ongoing economic weakness and is preparing to lower interest rates further in the coming months. The PBOC has just cut the one-year rate at which it lends to banks …
Worse still to come for exports Shipments picked up last month as factories re-opened and domestic demand began to recover. But with economic activity in the rest of the world now collapsing, the worst is still to come for China’s export sector. The …
14th April 2020
Q1 GDP to contract barring massive falsification The government will publish Q1 GDP figures next week in what will be an unprecedented test of its willingness to acknowledge economic weakness. There have been doubts about the GDP data for years. Most …
9th April 2020
An uneven recovery The first monthly data points for March are so far broadly consistent with what the daily indicators we track have been showing – that activity began to recover last month but remains weak. The PMIs were derided by some as implausibly …
3rd April 2020
The economic recovery underway in China gives some useful pointers to what lies ahead for the rest of the world. An initial increase in activity can happen rapidly once lockdown measures are eased. But this will soon run into constraints resulting from …
2nd April 2020
Activity improves but recovery to be slow The Caixin manufacturing PMI strengthened last month from February’s abysmal levels and suggests that the contraction in activity has already bottomed out. But weak foreign demand and labour market strains will …
1st April 2020
Past the worst but weakness to drag on The latest survey data add to broader evidence that activity has started to rebound but suggest that weak foreign demand and labour market strains remain headwinds. The official manufacturing PMI increased from 35.7 …
31st March 2020
The People’s Bank (PBOC) has taken another step to loosen monetary conditions by lowering the rate at which it lends to banks. But the central bank’s job isn’t done yet and we anticipate continued efforts to reduce bank funding costs in the coming months. …
30th March 2020
Pulling down the shutters China has continued its slow return to normality this week. Remaining restrictions on movement within the country are being relaxed. Residents of Hubei outside Wuhan are now free to travel; Wuhan’s lockdown will end in early …
27th March 2020
Activity across both industry and services is recovering as measures to contain the coronavirus have been eased. But the recovery is likely to run into the constraint of weak demand before long. The labour market is the biggest domestic concern. The …
On current trends the extreme shock to China’s economic output caused by official closing of workplaces and limits on movement will mostly have ended by mid-April. But firm closures and job losses, lingering nervousness among consumers, and the deepening …
24th March 2020
GDP target unachievable, more stimulus needed Officials in China are in the midst of reviewing the 2020 targets that were set (but not made public) during the Central Economic Work Conference in December. The new targets will be announced at the National …
20th March 2020
Commercial banks unexpectedly did not lower the Loan Prime Rate (LPR) today. Despite this, monetary conditions are still easing as the People’s Bank (PBOC) has been using a broad set of instruments to ensure that credit keeps flowing despite disruptions …
