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A rare trade deficit in February relieved some of the upward pressure on therenminbi, but the latest data suggest that the People’s Bank (PBOC) additionally purchased around $25bn of foreign exchange last month to force the currency to weaken. The PBOC’s …
19th March 2014
The People's Bank (PBOC) is keen to signal that this weekend's widening of the renminbi's trading band means that the currency's days as a "one-way bet" are over. But fundamentals still point to a stronger currency over the medium term. Greater volatility …
16th March 2014
The recent slide of the renminbi and February’s weak exports have been linked by some to a supposed loss of competitiveness in China’s export sector. In fact, despite rapid wage growth and trend appreciation of the currency, Chinese exporters are still …
14th March 2014
Today’s weaker-than-expected data won’t do anything to settle investors’ nerves about the state of China’s economy. Hopes for an imminent policy response will also have been dented by Premier Li’s insistence today that "we are not just chasing GDP …
13th March 2014
Interest rate liberalisation is happening faster than seemed likely even a few months ago as the sudden take-off of online money market funds has forced opponents of liberalisation to rethink their stance. … Online funds pushing interest rate …
11th March 2014
Despite looser monetary conditions in China and concerns that the government is adopting a more “pro-growth” stance, today’s data show that credit has continued to slow. … Bank Lending & Broad Credit …
10th March 2014
Yesterday's inflation data point to subdued price pressures. Meanwhile, despite the seasonal volatility in the latest trade data, foreign demand and exports remain healthy. … Headline shrink in exports is …
China’s leaders have left the GDP growth target unchanged at “about 7.5%” but they are also now talking of focusing on a “range” for growth, determined in part by the health of employment. One implication is that we should not expect a knee-jerk policy …
6th March 2014
The unchanged GDP growth target is the big news on the opening day of the National People’s Congress, though the government has given itself more wriggle room on growth than may immediately be apparent. Meanwhile, financial sector reform appears to be …
5th March 2014
Seasonal shifts in food prices are causing the usual volatility in inflation in the early months of 2014 including, it appears, a drop in the headline rate last month. Stepping back, price pressures remain subdued. Inflation looks set to stay within …
4th March 2014
The National People’s Congress meeting that starts in Beijing this week will give us a chance to review progress on economic reform since the Third Plenum and to gauge where the leadership’s immediate priorities lie. In this China Watch, we highlight …
3rd March 2014
The latest PMI surveys confirm the continued slowdown in manufacturing. We think the outlook for the sector remains downbeat. Despite the recent surge in liquidity we suspect that policymakers will make further efforts to slow credit growth which should …
The People’s Bank (PBC) dropped a large rock into the usually tranquil waters of China’s currency policy in February. Its attempt to reduce speculative inflows caused the largest single-month decline in the renminbi in two decades. Domestically, the PBC’s …
28th February 2014
Policymakers are moving to encourage private investors to play a larger role in China's state sector. However, unless the government is willing to relax control over state firms, investors will have little power to influence management decisions and …
A widening of the renminbi’s trading band is likely soon. But it would be wrong to think of such a shift as the main motivation for the currency’s recent moves. Indeed, a wider currency band would not make much difference to the renminbi’s medium-term …
26th February 2014
Hong Kong’s economy grew at its fastest pace in a year in the last quarter of 2013, thanks mainly to a continued recovery in exports. Looking ahead, with the territory’s prospects largely dependent on the health of global demand, Hong Kong should record a …
The recent abrupt fall in the renminbi is best seen as a salvo in a battle between policymakers who believe that China’s currency is close to its fair value and market participants who don’t. Fundamentals support those who expect further appreciation over …
25th February 2014
Concerns are mounting that higher interest rates in the US could cause Hong Kong’s economy to slow sharply. With growth picking up and with little slack in the labour market, tighter monetary policy could actually help to ease overheating fears. The big …
21st February 2014
Next month’s budget is likely to be neutral for growth. But on a broader definition that accounts for off-budget activity, the fiscal stance this year will probably be a major drag on the economy. … Fiscal drag to add to growth …
20th February 2014
Despite uncertainty surrounding the seasonal impact of Chinese New Year, today's downbeat PMI suggests that conditions in the manufacturing sector continue to deteriorate. With no loosening of monetary policy on the horizon, we expect that slowing credit …
January’s surge in bank lending in China does not signal any change in policy stance. Bank lending is always strong in January. Looked at in y/y terms, last month’s increase in loan growth was barely perceptible. In fact, loan growth has been flat since …
18th February 2014
Chinese New Year usually delivers a spike in consumer price inflation, however inflation remained subdued in January. … Consumer & Producer Prices …
14th February 2014
China's exports did far better than expected in January. Over-invoicing as a way to evade capital controls is being touted as one explanation but we can't find much evidence of that – indeed, if anything, this should have suppressed export growth last …
12th February 2014
Chinese New Year usually delivers a spike in consumer price inflation. This year though, prices have remained unusually subdued. Inflation is unlikely to be of much concern to policymakers at least until the second half of 2014. … Inflation Monitor …
11th February 2014
In the debate about whether to prioritise shoring up GDP growth or dealing with structural concerns, the latest monetary policy report from the People’s Bank suggests that it is firmly in the latter camp. … People’s Bank signals credit risks remain …
10th February 2014
China's leaders unveiled a detailed and comprehensive plan to reform the economy at the end of last year. The early signs on implementation are encouraging. As a result, we think 2014 will be a pivotal year for China's economy, setting it up for more …
The period around Chinese New Year is always a difficult time for anyone trying to make sense of what’s happening in China’s economy. It will be another couple of months before we get a clear view of what is going on, without New Year distortions. But …
3rd February 2014
January was another disappointing month for China’s equities. The weakness was largely due to problems at home rather than overseas. … A bitter end to the year of the …
31st January 2014
The Capital Economics China Activity Proxy (CAP) remains at odds with the official GDP figures, suggesting that the economy slowed by more and was growing at a slower pace in Q4 than the official data show. … GDP data still overestimating China’s …
30th January 2014
A last minute rescue package allowed investors in the troubled “Credit Equals Gold No. 1” trust product to recoup the principal and the bulk of expected interest from their investment this week. But this will not be the last trust product that gets into …
Worries about the health of China’s financial sector have been eased by today’s news that a high-profile default has been avoided on a troubled RMB3bn trust product (“Credit Equals Gold No. 1”). In the short term this is a victory for officials worried …
27th January 2014
Today's downbeat PMI suggests that the slowdown in China's manufacturing sector is accelerating. Tighter monetary conditions appear to be slowing domestic demand and will continue to weigh on growth in coming months. … HSBC/Markit Flash Manufacturing …
23rd January 2014
Contrary to some headlines this week, the ongoing decline in China’s working age population does not pose a major threat to China’s medium-term growth prospects. What matters is what happens to worker productivity, which will largely be determined by the …
Today’s GDP figures confirm that China’s economy slowed last quarter, with the monthly activity data showing that momentum was still slipping in December. In particular, the infrastructure investment that led the rebound in mid-2013 has faded. With credit …
20th January 2014
There has been some disappointment since the Third Plenum that the Party is not moving faster to reform the hukou household registration system. This may not matter much for the economy – the importance of the hukou system has already been eroded by other …
17th January 2014
December’s credit data are likely to set the tone for 2014: tighter monetary conditions are curbing credit growth. We expect this in turn to slow the growth of the economy. Meanwhile, the foreign exchange reserve figures confirm that the People’s Bank …
15th January 2014
At first sight, today’s trade data from China imply that export demand has weakened while domestic demand has picked up speed. But once we take into account previous distortions in the export data from over-invoicing and the high import share of China’s …
10th January 2014
Consumer price inflation fell further in December on the back of a sharp drop in food inflation. It may rebound this month due to the usual price volatility around Chinese New Year but is likely to remain subdued over the medium term. Despite the benign …
9th January 2014
The ongoing slowdown in China's economy is bringing into focus a tension in the government's objectives that is likely to be a key source of uncertainty in the months ahead. With the GDP growth target for 2014 reportedly the same as last year's, …
8th January 2014
Inflation appears to have finished 2013 on a subdued note. Policymakers’ latest moves to tighten the regulation of shadow banking along with other measures intended to rein in credit growth should keep price pressures under control in 2014. … Inflation …
7th January 2014
Pledges by the People's Bank to end currency intervention are likely to crumble in the face of sustained pressure on the renminbi to appreciate. We think that China's central bank could accumulate another half a trillion dollars of foreign exchange in …
6th January 2014
The latest PMI surveys signal that there was a broad slowdown in manufacturing activity at the end of 2013. Most notably, activity among large firms, a recent source of strength, has turned a corner and is likely to cool further as policymakers move to …
2nd January 2014
China’s interbank rates have surged this week on the back of seasonal tightness in liquidity that has been compounded by uncertainty about policymakers’ intentions. But with the People’s Bank today making clear that it will act to return market conditions …
20th December 2013
Business sentiment about China’s broad economic outlook recovered this quarter but most firms remain downbeat about their own prospects. Bankers are relaxed about the current state of monetary policy. Meanwhile, Chinese households have turned slightly …
19th December 2013
The Capital Economics China Activity Proxy (CAP) suggests that GDP growth has slowed to around 7.5% y/y in the final quarter of the year. … GDP growth slowing in …
17th December 2013
Today’s downbeat flash PMI leaves little doubt that the manufacturing sector is now cooling. Tighter access to credit will continue to weigh on growth in 2014. … HSBC/Markit Flash Manufacturing PMI …
16th December 2013
China's government has sounded a sanguine note about GDP growth at the close of its Economic Work Conference. Monetary policy will remain "prudent" and fiscal policy "proactive" in 2014. In practice, these labels don't mean much. But with policy …
13th December 2013
While bank lending was stronger than anticipated last month, overall credit growth continued to slow. The relative strength of loan demand may reflect the fact that rising market interest rates have made banks a more attractive source of finance. … …
11th December 2013
Today's activity data releases provide further evidence that the momentum behind the summer rebound has peaked despite renewed strength in the state sector. A tighter policy stance is likely to cause growth to slow further over coming quarters. … …
10th December 2013
There has been a rush of interesting data over the past couple of days suggesting that inflation pressures are low and domestic demand is faltering, though exports were less impressive than might first appear. Meanwhile, a decision to allow the trading of …
9th December 2013
