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Outflows shrink as trade tensions ease The official foreign exchange reserves figures suggest that the PBOC continued to refrain from direct FX intervention last month on the back of easing trade tensions. With outflows moderating – and pressure on the …
7th January 2020
Hukou reform not a gamechanger for property The scrapping of restrictions on residency (hukou) in smaller cities announced last week might give a boost to property markets in some places but it will be small. With urbanisation slowing and population …
3rd January 2020
External demand recovering but construction cooling The manufacturing PMIs ended 2019 higher than where they started the year but we doubt this means the worst is over for China’s economy. While it does appear that export growth is bottoming out, downside …
2nd January 2020
Our China Activity Proxy (CAP) suggests that growth picked up last month. That’s a challenge to our expectations of a slowdown in growth in 2020. But the resilience of property construction still looks unsustainable. If this sector slows significantly so, …
20th December 2019
Bond defaults hurting credit allocation Corporate bond defaults continue to dominate the headlines. As we argued two weeks ago , the recent pick-up in defaults adds to broader evidence that corporate balance sheets remain under strain. That said, it …
This Update was originally sent to clients as a Rapid Response immediately after the announcement by the PBOC. The Loan Prime Rate (LPR), the reference point against which banks now price loans, held steady in December. The one-year LPR was unchanged at …
China’s apparent reluctance to commit to the extra $200bn of US imports relative to 2017 levels that the US is requesting over the next two years as part of the Phase One deal is understandable: achieving the target would require imports from the US to …
18th December 2019
The People’s Bank has made another small downward adjustment to the rates it charges banks for short-run liquidity. We expect further cuts in the coming months, which will open the door to lower interbank rates and encourage banks to cut lending rates . …
Strong headline figures only half the story The activity and spending indicators beat expectations. But retail sales and real estate activity are weaker than the headline figures suggest. And we think growth will resume its downward trend before long. …
16th December 2019
“Phase One” deal may not stick A deal appears to have been reached which will avoid the tariffs on $160bn worth of US imports from China that were scheduled to come into force on Sunday. The details have yet to be confirmed but China has reportedly agreed …
13th December 2019
Domestic headwinds will continue to weigh on growth next year, even as the external environment starts to improve. We expect this to trigger additional policy easing, with the PBOC likely to cut rates by more than most anticipate and allow the renminbi to …
12th December 2019
Monetary easing still failing to lift credit growth Growth in outstanding broad credit was unchanged last month, despite recent monetary loosening by the People’s Bank. This suggests that more aggressive action will be needed to shore up growth. Chinese …
10th December 2019
Headline inflation close to a peak Rising pork prices pushed consumer price inflation to its highest level in close to eight years last month. But the pick-up in food inflation will reverse soon and broader demand-side price pressures remain weak, with …
China’s property sector is central to its economic performance, its demand for many materials and the stability of its financial system. In this updated and expanded Handbook, we discuss the drivers of the property cycle and answer key questions on …
9th December 2019
Base effects mask continued weakness in domestic demand Exports continued to languish last month and the pick-up in headline import growth reflects base effects rather than stronger domestic demand. Meanwhile, FX reserves data released over the weekend …
Bond defaults picking up again Corporate bond defaults have surged again recently, having subsided during the first half of this year. The value of bonds defaulting this year is now on course to exceed last year’s total. (See Chart 1.) Chart 1: Onshore …
6th December 2019
Pressure on manufacturing appears to have eased The survey data improved across the board last month, hinting at a pick-up in growth momentum. But we doubt this marks the start of a decisive rebound in activity. The Caixin manufacturing PMI defied …
2nd December 2019
As things currently stand, the US is due to extend its punitive tariffs to cover nearly all goods imported from China in two weeks’ time. But the Trump administration has appeared keen to avoid that happening almost since the president announced the …
29th November 2019
US politicians are all China hawks now The HK Human Rights and Democracy act that President Trump signed into law this week does not require any immediate changes in US relations with China and Hong Kong, but it underlines the extent to which “standing …
Our China Activity Proxy (CAP) suggests that the economy decelerated last month to its weakest pace of growth since May. Recent headwinds are domestic in origin, reflected in slower movements of freight and of travellers for business and leisure. Property …
26th November 2019
Trump may move slow on HK bill amid trade talks On Wednesday, the US Congress passed the HK Human Rights and Democracy Act in a near-unanimous vote. Trump will need to sign the bill by early December unless he decides to veto it, which is unlikely as a …
22nd November 2019
The latest Loan Prime Rate (LPR) reductions confirm that banks are lowering lending rates on new loans in response to the recent cuts to the PBOC’s lending facilities. And policymakers’ willingness to embrace lower rates on long-term loans hints at a …
20th November 2019
For the first time this easing cycle, the People’s Bank has cut the rate it charges banks for short-run liquidity. We expect further cuts in the coming months, which will open the door to lower interbank rates and make banks less reluctant to cut lending …
18th November 2019
US tariff rollback would offer meagre gains Despite some hiccups, US and Chinese negotiators still appear to be making progress towards a “Phase One” trade deal. In an encouraging step, both countries have relaxed restrictions on bilateral poultry imports …
15th November 2019
The slowdown resumes Activity and spending slowed across the board last month, more than reversing the uptick at the end of Q3. With further weakness on the horizon, we think additional policy stimulus is due before long. Growth in industrial production …
14th November 2019
If Hong Kong’s special treatment under US law were revoked, the city would lose access to sensitive US technology and face an increased threat of US tariffs. The short-term economic damage would be manageable, but it would accelerate the erosion of Hong …
11th November 2019
Further stimulus needed Monetary easing is failing to lift bank loan growth, while fiscal constraints are weighing on broader credit expansion. This should increase pressure on the PBOC to loosen policy more decisively. Chinese banks extended RMB 661bn in …
The People’s Bank is powerless to stop consumer price inflation jumping above its target without undermining its broader mandate to support growth and employment. Given this trade-off we expect the central bank to prioritise the latter and ease monetary …
Phase One comes into focus The outlines of a “Phase One” trade deal with the US are coming into focus. The two sides have agreed in principle to a “proportional” rollback of tariffs, according to China’s commerce ministry, with China also likely to pledge …
8th November 2019
Shipments improve amid trade deal optimism The contraction in both exports and imports eased more than expected last month. But even if the “Phase One” US-China trade deal crosses the finish line, it is unlikely to alleviate the main headwinds facing …
Easing capital outflows keep PBOC on the side-lines The official foreign exchange reserves figures suggest that the PBOC continued to refrain from direct FX intervention last month as renminbi depreciation pressure subsided. This points to a decline in …
7th November 2019
After keeping interbank rates broadly stable for most of this year, the People’s Bank (PBOC) is starting to take more direct steps to push down borrowing costs. We think this could mark the beginning of a series of PBOC rate cuts. Today, the PBOC cut the …
5th November 2019
Plenum offers few clues on economic policy The communique released following the end of China’s Communist Party Plenum was long, but barely touched on the economy and, where it did, it said nothing new. Mentions of “the decisive role of the market in …
1st November 2019
The survey data offer conflicting signals A divergence in the official and unofficial PMIs makes it unusually difficult to gauge how the economy performed at the start of Q4. On balance, growth appears to have picked up last month but activity is unlikely …
Recession to extend into Q4 Hong Kong’s first recession in a decade is shaping up to be deeper than anticipated. And while last quarter will probably mark the trough in q/q growth, the city’s economy will continue to struggle. The city’s GDP contracted …
31st October 2019
A weaker start to Q4 The official PMIs fell by more than expected this month, reinforcing our view that the improvement at the end of Q3 didn’t mark the start of a sustained recovery . The official manufacturing PMI declined from 49.8 in September to an …
The corporate earnings season currently underway in China has been disappointing. Admittedly, the Q3 results published so far point to a slight improvement in year-on-year growth in earnings per share of domestically-listed firms. But the recovery was …
30th October 2019
Industrial policy still at odds with market reforms Chinese authorities announced new regulations this week that promise to cut red tape and help level the playing field for different types of firms from 1 st January. This appears partly aimed at …
25th October 2019
Our China Activity Proxy (CAP) suggests that growth edged up at the end of last quarter due to a rebound in industrial activity. But the prop from industry should be short-lived, and with the recent boom in property construction levelling off, growth …
24th October 2019
The detailed breakdown of China’s Q3 GDP data released today shows that a slowdown in industry overshadowed strength in the construction sector. The headwinds to the construction sector should only get stronger in the coming quarters. GDP growth edged …
21st October 2019
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, was unchanged in October. This will only increase pressure on the PBOC to ease funding costs for banks in the coming months. The one-year LPR was unchanged …
Further policy tightening for property Bank lending to the real estate sector continued to slow in Q3 according to quarterly data published by the People’s Bank this week. (See Chart 1.) This reflects policy tightening for the sector which shows no signs …
18th October 2019
A stronger end to a weak quarter An uptick in activity in September didn’t avert a slowdown last quarter. And policy support is unlikely to prevent cooling external demand and slowing construction from resulting in more weakness ahead. GDP growth slowed …
The rift that has widened between China and the US was caused by China’s emergence as a geopolitical competitor to the US, rather than the personality of Donald Trump. Decoupling will continue whether or not the two reach a deal on tariffs. This may spur …
17th October 2019
Stimulus still underwhelming Credit growth failed to pick up in September despite recent policy easing. And while we expect policymakers to take more aggressive action before long, the impact of any easing on credit growth and economic activity will …
15th October 2019
Consumer price inflation hits a five-year high Headline inflation continued accelerating last month but core inflation held stable at a low level. With demand-side pressures on prices set to remain subdued in the coming months, we think that the People’s …
The US is attempting to pluck low-hanging fruit first, rather than hold out for a more complete trade deal with China. But reaching an agreement on the more contentious structural issues remains an uphill battle and it still seems more likely than not …
14th October 2019
Shipments weak ahead of trade deal The contraction in both exports and imports deepened last month. Import growth should start to recover soon. But with the mini US-China trade deal unlikely to alleviate the main headwinds facing exporters, it will take …
A mini trade deal probably wouldn’t last The US and China may be on the brink of a mini deal that postpones the US tariffs that are due to come into force next Tuesday. China has reportedly offered to buy more US agricultural goods in return. It has …
11th October 2019
China Overview – China’s economy has remained resilient in recent months. But with the boom in property construction on borrowed time and headwinds from higher food inflation and cooling global demand likely to intensify further, it is hard to see how a …
10th October 2019
