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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 …
10th December 2019
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
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
