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Today’s economic discussions between China and the US are taking place in an atmosphere of unusual warmth. There are two obvious reasons – the fall in China’s trade surplus and the renminbi’s recent gains against the dollar, which the US Treasury believes …
9th May 2011
The Capital Economics China Activity Proxy (CAP) suggests that economic growth is stabilising. Neither overheating nor a hard landing appears an imminent threat. … Growth …
27th April 2011
S&P’s decision to put a negative outlook on the US’s AAA credit rating will have been greeted with wry smiles in Beijing. Officials there have long been of the view that US policymakers cannot be trusted to safeguard the value of China’s dollar …
21st April 2011
China appears to be on the verge of allowing faster currency appreciation in response to inflation . This may not last long if inflation drops back in the second half of the year, as we expect. For now though, markets are probably underestimating the …
19th April 2011
China’s Q1 GDP data confirm that the economy has slowed, though the seasonally-adjusted figures were less enlightening than we had hoped. The continued strength of food price inflation is a concern, but inflation pressures are probably less widespread …
15th April 2011
The People’s Bank today launched a new measure of financing conditions. In this Update we outline what the new measure is and how useful we expect it to be. … What should we make of the new financing …
14th April 2011
China may have recorded a trade deficit last quarter but the pace of its intervention to hold down the renminbi barely slowed. Meanwhile, a rebound in lending last month is consistent with our view that policymakers have relaxed their stranglehold on …
Food prices probably drove headline inflation back above 5% in March, but non-food inflation still seems subdued, particularly when the impact of January’s re-weighting of the CPI basket is taken into account. With monetary conditions remaining relatively …
13th April 2011
A strong rebound in exports propelled China's trade back into a small surplus last month. There was still a deficit over the first quarter as a whole, but the difference from a year ago can be entirely explained by the increase in commodity prices since …
11th April 2011
The results of China’s largest quarterly business survey, released today, add to the pile of evidence that economic growth peaked at the end of 2010. There are tentative signs that growth is shifting inland from the coast. Less positively, large and …
8th April 2011
The timing of today’s rate hike was a minor surprise but the bigger picture is that interest rates have played a small part in China’s tightening cycle to date. We think that monetary tightening over the rest of 2011 is likely to come through further …
5th April 2011
China’s official PMI rose in March but, when seasonal factors are taken into account, both it and the alternative index from Markit/HSBC are consistent with the idea that growth has slowed moderately since late last year. Meanwhile, price pressures seem …
1st April 2011
High commodity prices have achieved what the last Five-Year Plan and a string of summits with key trading partners could not: a rebalancing of Chinese trade. In this China Watch we consider the implications for China and the world. In the coming month’s …
31st March 2011
The Capital Economics China Activity Proxy (CAP) provides further evidence that economic growth has levelled out over the last quarter. Market worries about overheating and dramatic monetary tightening already appear to be easing. … Activity growth …
25th March 2011
The recent data suggest that China’s households are increasingly reluctant to spend. Real retail sales growth slumped to a five-year low in the first two months of 2011. Other measures of household spending have been much weaker than the retail sales …
22nd March 2011
Evidence is mounting that China’s overheating threat is receding. The People’s Bank will continue to raise reserve requirements, as it did today, to ensure that bank lending remains under control, though probably at a slower pace than recently. Benchmark …
18th March 2011
China’s businesses are signalling that demand is slowing. Households are slightly less concerned about inflation than they were three months ago. By a wide margin, they still prefer to save rather than spend. … The view from the ground - Q1 …
16th March 2011
With the usual volatility around Chinese New Year and revisions to the way key data are collected clouding the view, about the only clear picture that emerges from China’s latest data is that retail sales growth has slumped. The consumer-led rebalancing …
11th March 2011
China’s unexpected trade deficit in February reflects both distortions around Chinese New Year and the impact high commodity prices are having on China’s import bill. Leading indicators of export demand and past experience both suggest that the surplus …
10th March 2011
Premier Wen Jiabao put price stability at the centre of the government’s concerns in his speech at the weekend. So here is a question for delegates to the National People’s Congress to ponder during their long hours in the Great Hall of the People. Why do …
9th March 2011
Non-food inflation has continued to rise but we remain sanguine about the outlook, not least because much of the latest increase seems to be due to the introduction of new index weights. High oil prices are a lower threat in China than elsewhere in Asia, …
8th March 2011
Much of the talk at the National People’s Congress is of the need to boost domestic demand. But with the finance ministry projecting an even smaller budget deficit for 2011 than 2010, the government’s commitment to rebalancing the economy remains in …
7th March 2011
The inclusion of a lower growth target in the new Five-Year Plan is a simple acknowledgement that growth will slow as China’s pool of surplus rural workers dries up. The call for better quality growth – meaning that its benefits should be more widely …
2nd March 2011
China’s two PMIs fell further last month and are now consistent with a pace of growth slower than the average of the last few years. Firms report that input prices are rising fast but the prices they charge to customers are much more subdued. Overall, …
1st March 2011
Hong Kong’s economy is growing at a healthy pace but residential property looks increasingly overvalued and today’s budget underlines that the government has few effective means to help. … Hong Kong property bubble …
23rd February 2011
The high level of consumer price inflation in China is a poor guide to how the competitiveness of its exporters is changing. Foodstuffs apart, factory gate prices are today rising only slightly faster than in the US. Over the past five years they have …
22nd February 2011
Much of the initial reaction to China’s new property price statistics has focused on the fact that property prices are “still rising”. But the median increase in new residential prices among the surveyed cities over the past 12 months was 6.1%, well below …
21st February 2011
Consumer price inflation last month was well below expectations. Bank lending soared, as usual at this time of year, but the People’s Bank does seem to have had some success in slowing the pace of lending towards the end of the month. All-in-all, today’s …
15th February 2011
The doubling of import and export growth between December and January seems to reflect not just the usual volatility around Chinese New Year but also confidence among manufacturers about the prospects for global demand. … Foreign Trade …
14th February 2011
January’s consumer price inflation figures will be the most closely-watched of China’s upcoming batch of data. But the lending data will also be worth a look for what they tell us about the government’s struggle to keep credit growth under control. …
11th February 2011
The sharp increase in food prices ahead of Chinese New Year is no surprise, but evidence of rising non-food price inflation is a greater cause for concern. Still, if we are right that economic growth has stopped accelerating, upward pressure on core …
10th February 2011
Today’s interest rate announcement again showed the People’s Bank applying the biggest rate increases to long-term deposits, in an attempt to encourage savers to keep their money in banks rather than seek speculative returns elsewhere. By contrast, …
8th February 2011
The US Treasury has again chosen not to label China a currency manipulator. With US economic prospects looking brighter, the immediate risk of a flare up in tensions over China’s trade and currency policy seems low. Nonetheless, China’s imbalances are …
7th February 2011
China’s two PMIs give some conflicting messages for January, but the overall impression is that activity is no longer accelerating and that inflation pressures, while still high, have declined. … PMIs …
1st February 2011
The Capital Economics China Activity Proxy (CAP) suggests that activity slowed in the final weeks of 2010. This is further evidence that the economy is not overheating. … Early signs of activity …
31st January 2011
The property tax plans that were announced yesterday look more like token measures than serious attempts to dampen property market speculation or provide local governments with a secure source of income. The State Council yesterday gave the go-ahead for …
28th January 2011
Interbank rates have spiked to multi-year highs ahead of Chinese New Year. This partly reflects seasonal factors, but also that successive required reserve ratio (RRR) hikes are squeezing banks’ ability to lend. The trade surplus and financial inflows are …
26th January 2011
China’s dual imbalances – its trade surplus and its domestic reliance on investment over consumption – both widened in real terms in 2010. Government fiscal policy made things worse. … China’s imbalances getting …
24th January 2011
China’s economy ended 2010 with momentum strong but is likely to slow in 2011 as real estate construction spending weakens and stimulus projects reach completion. With inflation also now steadying, there is likely to be little need for policymakers to …
20th January 2011
Even if we shared the common view that China’s property market is in a bubble, the tax that seems likely to be introduced soon on residential property would not be a solution. … Property tax no …
19th January 2011
Consumer price inflation probably fell in December, as food prices finally stopped rising. Non-food inflation remains low and neither capacity constraints nor monetary growth look likely to push it significantly higher in the short-term. Inflation is …
18th January 2011
The People’s Bank is shifting towards using reserve requirements as a primary tool to limit credit growth. This is another reason to believe that interest rates will not rise as far as many expect in 2011. … Reserve requirements set to become primary …
14th January 2011
Most companies in China finished 2010 confident about the future. The business environment still seems skewed in favour of large and state-owned firms, which enjoy more government support, particularly during periods of policy tightening. … NBS business …
10th January 2011
A combination of strong domestic demand and high commodity prices is helping to narrow China’s trade surplus but the imbalance with the US remains wide. … Foreign Trade …
President Hu Jintao’s visit to the US later in January will draw attention back to the renminbi. We believe that markets are underestimating the likely pace of appreciation over the year ahead. In this month’s data releases, GDP growth may have risen in …
7th January 2011
Ask any number of people in China to identify the biggest economic problem the country faces in 2011 and they, along with most analysts, will agree: inflation. They may all be wrong. … The big risk for …
4th January 2011
The Capital Economics China Activity Proxy (CAP) suggests that the economy is growing faster than its sustainable rate at the end of 2010. With the government focused on maintaining rapid growth, concerns about inflation will linger in 2011 even if, as we …
23rd December 2010
Markets have scaled back their expectations for policy tightening in China as senior officials have made clear that they see no need for a major policy shift. The government’s stance is based in part on the view that inflation will soon level out. But …
21st December 2010
China’s businesses have grown in confidence in the last quarter but banks and consumers are far less upbeat. Banks are increasingly worried about overheating and the need for policy tightening. Households are unhappy with inflation and still, by a wide …
16th December 2010
The ongoing structural shift in China’s workforce will cause economic growth to slow and is likely to result in higher, though still manageable, inflation. Household incomes may finally start rising faster than GDP, while the role of investment in driving …
14th December 2010