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Growth moderated in Q2 despite June uptick A stronger end to the quarter didn’t prevent growth from slowing in Q2 and we see more weakness on the horizon. Activity held up better than anticipated, but we expect this strength to be temporary. GDP growth …
15th July 2019
PBOC rate cut on 1 st August? The Fed has all-but-confirmed that it will cut rates at its upcoming meeting on 31 st July. The PBOC is likely to follow suit, perhaps the next day, with a reduction to its reverse repo rates, the rates at which it lends to …
12th July 2019
Trade softens as headwinds intensify Exports declined last month as a result of the step-up in US tariffs in May and waning global demand. Imports also weakened on the back of a renewed domestic slowdown. Export growth turned negative in June, falling …
Credit growth extends its modest recovery A shift toward fiscal easing helped to push up credit growth last month but the pace of lending remained relatively weak and still looks consistent with a further slowdown in economic growth. Chinese banks …
African swine fever continues to take its toll Lower oil prices kept headline inflation stable last month despite a further rise in pork prices. But with pig stocks still tumbling we think increases in consumer prices will start to accelerate again before …
10th July 2019
Fiscal policy being loosened again Early last month, the State Council announced measures to help shore up infrastructure spending. (See here .) Data published this week suggest that this has already led to a shift in the fiscal stance. After dropping …
5th July 2019
Activity cools heading into Q3 The latest survey data suggest that China’s economy is coming under renewed pressure as a result of cooling foreign demand and waning fiscal support, which should trigger further monetary easing. The Caixin manufacturing PMI …
1st July 2019
Would a G20 truce last? The G20 summit kicked off in Osaka today, with Presidents Trump and Xi scheduled to meet tomorrow. Recent media reports suggest that they will agree to restart formal trade negotiations and hold off imposing new tariffs for the …
28th June 2019
Our China Activity Proxy (CAP) continues to suggest that economic growth has stabilised in recent months, with stronger construction activity helping to mask a slowdown in other sectors. But with headwinds from US tariffs still likely to intensify later …
26th June 2019
Tariffs have weighed heavily on China’s exports to the US in recent months. Shipments of goods in the $50bn list were almost 30% lower in the first four months of 2019 than they were a year before. Exports of goods in the $200bn list, which had been …
25th June 2019
The People’s Bank has pushed down overnight interbank rates to multi-year lows. This is partly a response to market jitters following the Baoshang Bank takeover and may partially reverse in the coming days. But we think that the broader shift toward …
In a Focus last month, we discussed what we see as the most plausible hard landing scenario for China: troubles at a small bank that spread to the interbank market and trigger a systemic banking crisis. There are disconcerting similarities in the …
21st June 2019
China’s policymakers are returning to the familiar playbook of local government infrastructure spending to shore up growth but still, it appears, on a relatively small scale. Meanwhile, despite the confusing signal sent by the rising value of its foreign …
14th June 2019
Another disappointing batch of activity data in May reinforces our view that growth will probably weaken a bit more this quarter. With consumer and business sentiment likely to sour further as the trade war escalates, additional policy easing will be …
The immediate economic impact of the protests in Hong Kong will be very small. But continued erosion of Hong Kong’s autonomy, which is threatened by the proposed extradition law, would undermine a key foundation of its economic success. … What do the …
12th June 2019
Credit growth remained broadly stable in May. Policy easing has not yet been effective in generating a sustained pick-up in credit growth and is one of the reasons why we don’t expect a strong recovery in economic growth in the coming months. … Bank …
Headline inflation was once again boosted by a sharp rise in pork prices in May. But with core inflation declining to a three-year low, it is clear that demand-side pressures on prices remain muted. … Consumer & Producer Prices …
While exports rose in May, weaker global demand and the escalating trade war suggest that they will start to fall again before long. … Trade …
10th June 2019
A bad week in the trade war The US and China have been spiraling further apart. President Trump’s imposition of new tariffs on Mexico will have been taken in Beijing as a warning that even a deal with the US doesn’t guarantee better relations – so why …
7th June 2019
A deal to end the US-China trade dispute appears further away than ever. We now expect all US goods imports from China to be subject to a 25% tariff by early next year. China is likely to respond with largely symbolic tariff increases of its own. More …
6th June 2019
The continued weakness in China’s activity surveys reinforces our view that economic growth is likely to soften this quarter and increases the likelihood of additional policy easing in the coming months. … Caixin Manufacturing PMI …
3rd June 2019
The first regulatory takeover of a Chinese bank in more than two decades is a reminder that the balance sheets of many regional lenders are far less healthy than they claim. China’s interbank market mostly shrugged off the move since it reinforced the …
31st May 2019
The latest survey data suggest that economic growth in China has yet to bottom out. Given the growing headwinds from US tariffs and signs that the labour market may be faltering, we expect policymakers to roll out additional policy stimulus in the coming …
The domestic headwinds that have caused China’s economy to slow over the past year are abating thanks to the policy support that has put a floor under credit growth and fuelled local government spending. But policymakers are still concerned about credit …
24th May 2019
Our China Activity Proxy (CAP) suggests that, while a further acceleration in construction activity prevented growth from edging down in April, momentum in the rest of the economy softened last month. … Prop from construction prevents further …
While the trade war has dominated the headlines, the People’s Bank has been getting on with the unglamorous work of financial reform. It is moving closer to phasing out benchmark lending rates. That probably won’t be enough to lower bank lending rates, as …
Retail sales growth slowed sharply in April, to its slowest pace since the SARS outbreak in 2003. While part of the weakness can be explained by a drop in fuel prices, the slowdown was not limited to spending on fuel alone. The contribution to retail …
22nd May 2019
Hong Kong’s GDP growth slowed again in the first quarter of the year, and the economy is now expanding at its slowest pace since the global financial crisis. With exports likely to remain in the doldrums and high interest rates set to drag on domestic …
17th May 2019
If strictly enforced, the US decision to ban Huawei from doing business with American firms would be major headache for the company, which accounts for around 0.2% of Chinese GDP. And the move may also make it more difficult for the two countries to reach …
Structural headwinds will weigh on China’s growth rate over the coming decade. If well managed, this slowdown will be gradual. But a more abrupt adjustment shouldn’t be ruled out. We see two main threats – political instability that disrupts economic …
16th May 2019
The 2% fall in the renminbi since the US-China trade war flared up again reflects market pressure more than a deliberate policy choice – Chinese policymakers have actually been trying to slow its slide. If trade talks break down entirely, they would have …
The April activity and spending data were weaker than anticipated across the board, confirming our doubts about the durability of March’s strength and increasing the likelihood of further policy easing. … Activity & Spending …
15th May 2019
We think the small scale of China’s planned tariff hikes reflects three factors – a desire not to escalate tensions, the limited scope for further tariffs and China’s ability to use other tools to punish US firms. … Three reasons for China’s modest …
14th May 2019
The US hiked tariffs on Chinese goods on Friday. This escalation in trade tensions comes at a challenging time for the Chinese economy, with export growth already weak, fiscal support waning and swine fever threatening to deliver an inflationary shock. … …
10th May 2019
The slowdown in credit growth last month underlines the need for further monetary policy easing in order to keep credit expanding fast enough to provide a floor to economic growth. … Bank Lending & Broad Credit …
9th May 2019
Both official measures of inflation picked up last month but this was mostly due to supply-side factors and therefore shouldn’t be interpreted as clear evidence of stronger domestic demand. … Consumer & Producer Prices …
Export growth last month was disappointing, with Trump’s latest tariff threats adding to the downside risks ahead. Meanwhile, higher commodity prices helped April’s import values beat expectations, but import volumes still point to subdued domestic …
8th May 2019
President Trump has threatened an imminent expansion of tariffs against China. We expect this to result in stronger headwinds to growth, more policy easing, a weaker renminbi and a stock market rout. … Four implications of the re-escalation in trade …
6th May 2019
Bank lending to small firms should receive a sizeable boost from the planned reduction in the required reserve ratio for many rural banks, pushing up overall bank loan growth in the process. While this won’t provide an immediate prop to growth, it should …
Efforts to open the door to more foreign participation in China’s financial sector took another step forward this week. But without broader free-market reforms, foreign entrants may still struggle to disrupt Chinese incumbents. Meanwhile, stricter new …
3rd May 2019
After jumping in March, both manufacturing PMIs fell back in April, disappointing hopes for a further recovery and reinforcing our view that there are still some downside risks to near-term activity. … PMIs …
30th April 2019
Our China Activity Proxy (CAP) suggests that the economy weakened further in March. But the slowdown so far this year has been milder than we had anticipated and may be close to bottoming out. We have raised our growth forecast for 2019 in response. … …
29th April 2019
The less dovish tone of recent comments from the People’s Bank and from Premier Li is the latest sign that policymakers are keen to avoid the sort of debt-financed surge in growth that followed previous economic downturns. China’s equity markets appear …
26th April 2019
A further acceleration in home prices on the official survey of 70 cities has sparked hopes that China’s residential property market may be heating up after more than a year of nearly flat sales. But we are less optimistic. Our own calculation of …
18th April 2019
Among the better-than-expected data published this week, industrial output growth stood out as especially strong after it jumped by the most since March 2009. But there are reasons to think that underlying momentum has not improved as dramatically as the …
China’s economy stabilised in Q1 thanks to a marked improvement in activity last month. Admittedly, the latest surge in industrial production is hard to take at face value and is likely to be partially reversed in the coming months. And some downside …
17th April 2019
The government’s plans to make it easier for rural migrants in small cities to acquire urban residency permits have raised hopes of a revival in property sales. But the nationwide impact will probably be marginal unless restrictions in larger cities are …
12th April 2019
Broad credit growth rose in March, but is still consistent with further economic weakness in the near term. We think that the People’s Bank will loosen policy further over coming months. … Bank Lending & Broad Credit …
Stronger-than-anticipated exports hint at an uptick in foreign demand but disappointing imports suggest that domestic demand may not be holding up as well as hoped. … Trade …
We expect stimulus to shore up growth in the next few months. But with the scale of policy support smaller than in previous downturns, the sharp economic rebound that some are expecting is unlikely. … Policy restraint to limit scale of …
