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Outflow pressures remain muted China’s FX reserves declined unexpectedly last month but officials claim this was due to valuation effects and muted outflow pressures suggest that the PBOC will have felt little urgency to run down it reserves. The value of …
7th October 2019
US investment curbs unlikely to trump tariffs Recent media reports suggested that the Trump administration is considering ways to restrict US capital flows into China, including delisting Chinese firms from US stock exchanges and prohibiting government …
4th October 2019
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 …
30th September 2019
Strong PMIs likely a false dawn China’s manufacturing PMIs jumped this month, indicating that activity got a break from the ongoing slowdown. But this is unlikely to mark the start of a turnaround. There are signs of a slowdown in construction activity, …
Too much of a good thing? Beijing’s new airport opened its doors this week. It will more than double the city’s passenger capacity, taking it well above other major international hubs, including New York, London, Tokyo, Hong Kong and Dubai. Even if …
27th September 2019
PBOC Governor Yi Gang today appeared to pour cold water on the prospect of imminent monetary easing. He said that the PBOC would not rush to follow the US Fed and ECB in cutting rates and that “China’s monetary policy will maintain its prudent …
24th September 2019
Our China Activity Proxy (CAP) suggests that growth remains resilient but has edged down slightly since the end of Q2. With property construction no longer accelerating and broader activity still under pressure, growth is likely to drop back further in …
23rd September 2019
Fiscal stance still accommodative Government spending contracted in August, leading some to question the strength of fiscal support. But with tax cuts still weighing on revenue growth, the budget deficit remains close to its widest ever. (See Chart 1.) …
20th September 2019
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, came in slightly lower for September. We think that more decisive cuts will materialize before long. The one-year LPR was set at 4.20%, down from the …
The ability of monetary easing to stimulate credit growth in China has diminished and we think this will lead the People’s Bank to pull down interbank rates further than most anticipate. But even this probably wouldn’t avert a further economic slowdown …
19th September 2019
Activity weakens further After worsening across the board in July, growth in industrial production, capital spending and retail sales fell even further last month. And with a strong rebound unlikely any time soon, we anticipate that more policy easing …
16th September 2019
How much food is in the basket? Pork prices in early September are 70% higher than they were this time last year. How credible is it that overall consumer price inflation is just 2.8% y/y? Unlike most statistics agencies, China’s doesn’t publish the …
13th September 2019
Intervention by China’s government to halt the spread of African Swine Fever (ASF) and mitigate its impact on pork prices is proving ineffective. Inflation will next year rise above the government’s target for the first time in nearly a decade as a …
12th September 2019
Credit growth holds steady Monetary easing has so far failed to generate much of a pick-up in credit growth, which remained unchanged last month. This should push policymakers to take further action. Chinese banks extended RMB1,210bn in net new local …
11th September 2019
Early-warning indicators suggest that Hong Kong’s banking system is primed for a crisis. And banks face multiple shocks from an economic recession, a housing market correction and capital outflows. But conservative lending standards and strong capital …
10th September 2019
Factory-gate deflation deepens Weakening demand dragged producer price inflation further into negative territory last month while surging pork prices kept consumer price inflation elevated. With demand-side pressures on prices increasingly subdued, we …
Export growth turned negative again Exports fell last month as global demand softened and US tariffs continued to take their toll. Imports improved thanks to strong infrastructure spending but remain consistent with a further economic slowdown. Meanwhile, …
9th September 2019
PBOC kicks into gear but fiscal stance unchanged The People’s Bank (PBOC) was quick to answer the State Council’s recent call for more stimulus, announcing a cut to banks’ required reserve ratio (RRR) today. (See here .) More policy easing will probably …
6th September 2019
The PBOC will release a portion of the reserves commercial banks’ hold at the central bank. While this will pull down interbank rates in the short run, the PBOC will need to cut its policy rate to make the lower interbank rates stick. But even if policy …
Fiscal stimulus taking effect The latest survey data suggest that exports have continued to struggle but that factory activity was propped up by stronger infrastructure spending. The Caixin manufacturing PMI jumped from 49.9 in July to a five-month high …
2nd September 2019
Back when a trade war was just a rallying cry in Donald Trump’s presidential campaign, he pledged to put a 45% tariff on all Chinese goods. 45% on some products no longer seems unlikely. But both sides are opting to avoid across-the-board tariffs, …
30th August 2019
China’s share of global exports has increased over the past year, despite US tariffs. Renminbi depreciation and the transhipments of goods to the US via neighbouring countries can take much of the credit. China’s economy has held up well despite the …
29th August 2019
With President Trump adding yet more US tariffs to the pipeline, the impact on China’s economy is starting to add up. With the drag on GDP growth set to rise to nearly one percentage point before long, it is significant enough to warrant looser monetary …
26th August 2019
The tariffs announced today by China’s government are a departure from previous rounds of retaliation: they focus almost entirely on further raising tariffs on products that have already been targeted. That most likely reflects concern that applying …
23rd August 2019
PBOC could fend off a US attack on the RMB There is speculation that the Trump administration could attempt to weaken the US dollar by intervening in FX markets to push up the value of the renminbi. But we doubt such efforts to influence China’s exchange …
Hong Kong’s GDP is now just 3% of mainland China’s, down from 18% in 1997 when the city returned to Chinese control. But Hong Kong still serves as the main gateway between China and the world where financial flows are concerned. (See Chart 1.) This …
22nd August 2019
Our China Activity Proxy (CAP) suggests that growth remained strong at the start of Q3. However, with external headwinds mounting and property development likely to moderate, economic activity looks set to slow before long . The CAP is our attempt to …
21st August 2019
Quasi-rate cut still leaves the PBOC with work to do The newly revamped Loan Prime Rate (LPR), intended to replace the traditional benchmark lending rate as the reference point against which banks price loans, was launched today. The one-year LPR was set …
20th August 2019
A long-awaited shake-up of how China’s banks price loans should in time give policymakers much finer control of bank lending rates and could open the door to a quasi-rate cut as soon as tomorrow. But it won’t immediately clear the roadblocks that have …
19th August 2019
Foreign firms hardest hit by industrial slowdown Growth in industrial value-added fell to a 17-year low in July, according to data published this week, triggering renewed concerns about China’s economic outlook. Admittedly, these figures haven’t always …
16th August 2019
Disruptions from the ongoing protests look set to pull down Hong Kong’s GDP growth to its lowest since the global financial crisis this quarter and there is a growing risk of an even worse outcome if a further escalation triggers capital flight. The Hong …
14th August 2019
The slowdown resumes After improving in June, economic conditions worsened across the board last month as growth in industrial production, capital spending and retail sales all dropped back. We see more weakness on the horizon. Growth in industrial …
Credit growth sputters The latest slowdown in lending highlights the need for further monetary easing if policymakers are to succeed in putting a floor beneath growth. Chinese banks extended RMB1,060bn in net new local currency loans in July, down from …
12th August 2019
Factory-gate deflation returns Weakening demand dragged producer price inflation into negative territory last month even as surging pork prices continued to push up consumer price inflation. Both have downbeat implications for the health of China’s …
9th August 2019
More depreciation ahead The People’s Bank (PBOC) allowed the renminbi to weaken beyond 7.00 against the US dollar this week in response to Trump’s most recent tariff threat. We doubt the PBOC would have taken this step if it wasn’t willing to let the …
8th August 2019
Trade picks up but headwinds remain Shipments in and out of China held up better than expected last month, but a sustained turnaround still looks unlikely in the near-term. Export growth picked up from -1.3% y/y in June to 3.3% last month in US dollar …
The calm before the storm The latest FX reserves figures are consistent with the People’s Bank (PBOC) having remained on the side-lines of the FX market last month. But the relative calm of July will give way to a more eventful August . The value of the …
7th August 2019
The US decision to label China a currency manipulator is on shaky economic grounds since, if anything, the renminbi would be even weaker than it is now without policy support. But the move is another escalation in a deteriorating bilateral relationship …
6th August 2019
China is left with few good options to hit back at the US in ways that wouldn’t be self-defeating. Rather than direct retaliation, officials are therefore likely to focus their efforts on broader measures to offset the drag from US tariffs, including …
5th August 2019
The PBOC has allowed the renminbi to fall to its weakest level in a decade in response to trade tensions. It appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency …
The trade war between the US and China has made barely any difference to the scale of their bilateral trade imbalance, which was President Trump’s original concern. But China is reaching the limits of its ability and willingness to restrict imports from …
2nd August 2019
Tariff man strikes again President Trump re-escalated trade tensions overnight by announcing a 10% duty, effective 1 st September, on the $300bn worth of US imports from China yet to be subject to tariffs. We estimate that this will directly knock of …
Unofficial survey rises but headwinds remain The latest Caixin survey suggests that factory activity remained weak last month but that downward pressure eased somewhat, painting a similar picture to the official manufacturing PMI released yesterday. The …
1st August 2019
Trade war trumps the protests, for now Hong Kong’s economy lost momentum last quarter. Slower trade flows are more to blame for this than the recent protests, adding to downbeat signs on the health of the global economy. Hong Kong’s GDP growth held steady …
31st July 2019
The soft data still point to a slowdown The latest surveys remain consistent with a renewed slowdown in growth. Downward pressure on factory activity eased this month, but momentum in services and construction weakened. The official manufacturing PMI rose …
Limited trade war impact on FDI flows, for now There was no net increase in direct investment by Chinese firms in the US last year according to the annual US Bureau of Economic Analysis report on direct investment, which was published this week. (See …
26th July 2019
Our China Activity Proxy (CAP) suggests that growth jumped at the end of last quarter. But data issues raise questions about the true extent of the pick-up. And mounting domestic and external headwinds offer reasons to remain downbeat on the outlook. The …
24th July 2019
China Overview – China’s economy has stabilised in recent months thanks to surprisingly resilient property construction. But real estate developers will probably scale back the pace of new projects before long. And with headwinds from US tariffs and …
22nd July 2019
Builders report slower growth in Q2 China’s economy has faced multiple headwinds over the past year, but it has also received a significant – and underappreciated – boost from accelerating property construction. Property developers report having ramped up …
19th July 2019
Nominal GDP growth and credit growth almost converged at the end of 2018, but the gap between them has widened again this year as growth has slowed and policymakers have shifted their focus away from deleveraging and towards supporting growth. (See Chart …
17th July 2019
