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Consumer price inflation increased by much more than expected in November. But recent policy moves and official statements, including that from this weekend’s high-level policy meeting, give the strong impression that the government believes inflation is …
13th December 2010
Today’s data showing continued rapid lending and very strong import growth will do nothing to calm market concerns that monetary policy in China is falling behind the curve. A rate hike seems imminent. But we believe that policymakers are right to think …
10th December 2010
Consumer price inflation probably rose further in November, but the upward momentum appears to be fading. Weekly data show that vegetable prices have fallen in each of the last four weeks. Unless inflation now starts to spread beyond food, which has not …
8th December 2010
The main events for December are the high-level meeting at the end of this week to discuss economic policy for the coming year, and the release of November’s inflation data in a week’s time. … A look ahead to …
6th December 2010
Monetary conditions are not particularly loose in China and markets may be overestimating the degree of tightening to come. We expect several increases to the required reserve ratio over the next 12 months, but only three benchmark interest rate hikes. In …
2nd December 2010
China’s latest PMIs provide more evidence that the economic rebound remains very strong. Output price inflation has picked up, but the strength of the economy means that policymakers can tighten further without causing a hard landing. … PMIs …
1st December 2010
The Capital Economics China Activity Proxy (CAP) points to a continued, broad-based rebound in the economy that provides space for policymakers to tighten without significantly undermining growth. … Rebound …
25th November 2010
Inflation has risen faster than anticipated over the last few months and is now the primary concern of both policymakers and markets. A tight credit quota seems likely for 2011 – perhaps RMB6.5trn compared with the RMB7.5trn this year – as the government …
18th November 2010
Price controls may appeal to officials eager to be seen to be doing something about rising inflation, but China’s experience with controls has not been encouraging. For markets, they could play either way. Investors may conclude that such a step makes …
16th November 2010
Hong Kong’s economy outperformed expectations last quarter thanks to strong spending by residents on the back of a strong labour market recovery and a surge in spending by tourists. The overheated property market is still the main concern. … Hong Kong GDP …
12th November 2010
The viability of Hong Kong’s dollar peg is again in question although the evidence linking recent asset price movements to the peg is weaker than many think. In any case, none of the alternatives to the peg is particularly appealing. Keeping the peg will …
11th November 2010
Consumer price inflation rose more than expected last month, but it continues to be solely a food price problem. Of more concern is that loan growth has not slowed, despite strong signals from the government that it wants credit policy to tighten. The …
China’s trade surplus has continued to widen, despite a recent run of strength in imports. The stage is set for a tense G20 summit. … Foreign Trade, Property …
10th November 2010
We think that consumer price inflation peaked in October. With all the recent increase in the headline rate coming from food prices, inflation is only likely to continue rising if there are further shocks to food supply. There is little evidence of …
9th November 2010
Emerging market economies will continue to grow rapidly over the next few years. But with current account surpluses in most of Asia and among oil producers likely to remain high, this will not be of much benefit to the developed world. What’s more, while …
8th November 2010
Today’s tensions between China and the US have many echoes of those between Japan and the US in the 1980s including, most clearly, over the exchange rate. The lesson for China is not, as some have suggested, that China should withstand US pressure on its …
The Q3 monetary policy report published earlier this week is the first formal policy statement from the People’s Bank (PBC) since interest rates were hiked a fortnight ago. In it, the PBC mentions a desire to “normalise” monetary policy. This implies that …
4th November 2010
China’s latest PMIs suggest that the economic rebound has further to go. Input prices have picked up, but manufacturers are not passing price increases on to consumers. As a result, the People’s Bank will feel no pressing need to raise interest rates. … …
1st November 2010
The Capital Economics China Activity Proxy (CAP) confirms the recent acceleration in quarterly growth that emboldened policymakers to hike interest rates last week. But it also shows that the turnaround owed much to a revival in construction activity that …
28th October 2010
The renminbi has risen more than 2% against the dollar since the beginning of September. The US Treasury’s decision to defer publication of its currency report and the upcoming G20 summit will maintain the pressure on China to keep its currency moving at …
27th October 2010
The People’s Bank (PBC) delivered a jolt to global markets when it unexpectedly raised interest rates last week. Never mind that the small increase will have a negligible impact on China’s economy. Even after the move, banks are charging firms under 6% to …
25th October 2010
Today's data did not show the upsurge in inflation that some had thought might have triggered this week's interest rate hikes. Q3 GDP growth too was in line with initial expectations. Instead, the rate moves may have been driven, at least in part, by a …
21st October 2010
With its surprise decision to raise benchmark interest rates, the People’s Bank of China is giving a strong signal to banks to rein in lending after the surge of the last few weeks. The immediate, direct impact on the economy will be minimal, but one …
19th October 2010
China is again responding to foreign pressure with a surge in the renminbi. But a coming slowdown in exports, a desire to limit the predictability of the renminbi’s rise and, possibly, a rebound of the dollar against the euro and yen will make it hard for …
18th October 2010
Confidence among Chinese firms recovered in Q3 as worries about the outlook for the real estate sector faded. … NBS business conditions survey …
14th October 2010
The $194bn increase in China’s foreign exchange reserves in the third quarter was one of the biggest on record. There are two immediate implications. … Surge in FX reserves throws spotlight on Chinese …
13th October 2010
China's overall trade surplus may have declined slightly last month, but tensions are unlikely to do the same. Q3's monthly surpluses with the US were the three largest on record. Meanwhile, the value of China's foreign exchange reserves grew by $194bn in …
The most closely-watched data release this month will be that for third quarter GDP, due on the 21st. But a more momentous event will take place a few days earlier when the Communist Party leadership holds its annual meeting. Among the items on the agenda …
11th October 2010
Reuters is reporting that the required reserve ratio (RRR) for major banks has been raised. The People’s Bank (PBC) has not confirmed the move, but if true the best explanation is that the large banks are being rapped over the knuckles for loosening …
Export margins did not fall when the renminbi was last rising against the dollar and Chinese producers continued to gain global market share. There is no reason to think that China’s export sector is less capable of dealing with a rising currency now. … …
7th October 2010
Consumer price inflation is probably close to a peak. If the People’s Bank does not raise interest rates in the next few weeks (we think it won’t), it will find it increasingly hard to justify doing so as inflation drops off next year, even though higher …
5th October 2010
What should we make of speculation that interest rates could soon be hiked? Rates have been rising in much of emerging Asia for a while and we believe that rate increases would be a good idea for China. Nonetheless, we think it likely that benchmark rates …
30th September 2010
There was further evidence in today’s PMI that China’s economy has bottomed out and is now regaining momentum. Meanwhile, price pressures are still subdued. … HSBC/Markit PMI …
29th September 2010
Chinese policymakers probably would respond to any substantial fall in the dollar by allowing more rapid renminbi appreciation. But hopes that a dollar collapse could force China into the sort of currency adjustment needed to rebalance the global economy …
The Capital Economics China Activity Proxy (CAP) suggests that growth has picked up after bottoming out over the summer, with support coming from a surprising source. … Real estate supporting summer …
23rd September 2010
China’s businesses and banks are increasingly confident about the economic situation, but consumers are downbeat, preferring by a wide margin to save rather than spend. … The view from the ground - Q3 …
20th September 2010
A spurt of renminbi appreciation in the last few days may not be enough to dampen growing anger in Washington at how slowly the Chinese currency has moved since the de facto peg was loosened in June. Japan’s decision to intervene in currency markets may …
16th September 2010
The renminbi’s latest gains appear to be a response to rising US criticism that the pace of movement in the exchange rate since June has been too slow. This reactive approach could backfire as tensions escalate. … Mounting US pressure behind renminbi …
14th September 2010
There were further encouraging signs in today’s import data that domestic demand is firming up after a shaky few months. The trade surplus is still gaping wide though. Tensions over the renminbi are likely to reappear ahead of November’s G20 summit. … …
10th September 2010
Consumer price inflation continues to rise on the back of rapid food price increases, which should prove short-lived. Underlying price pressures remain weak. … Inflation Monitor …
9th September 2010
The government has announced a series of moves over the last month designed to push the renminbi along the road to becoming an international currency. But major obstacles stand in the way, not least the government’s reluctance to allow unfettered …
6th September 2010
China’s latest PMIs provide tentative evidence, which tallies with what our own China Activity Proxy is telling us, that the economic slowdown is bottoming out, albeit with the pace of growth relatively weak. … PMIs …
1st September 2010
The recent import data suggest that China’s demand for industrial metals and for oil has levelled out this year after a sharp rebound in 2009. This is consistent with other evidence that China’s economy has been slowing since mid-2009 (and is continuing …
23rd August 2010
The Conference Board’s leading index is picking up again, but other forward-looking indicators suggest that China’s economy is continuing to slow. We still think that the authorities will have to loosen policy further – probably including the raising of …
17th August 2010
After another decent performance in Q2, Hong Kong’s economy seems to be on track for steady growth in the months ahead. The property market is looking frothy, but the government is already acting to reduce the risks, including through tighter mortgage …
13th August 2010
The economy appears to be slowing more rapidly than anticipated a couple of months ago, according to data released today. China’s government has plenty of room to loosen policy to avoid a hard landing, but this will probably entail limits on bank lending …
11th August 2010
China’s July trade data suggest that global demand is still strong while the domestic economy is flagging. With the trade surplus not far off a record high, China's critics overseas are unlikely to understand the need to move so slowly on the renminbi. … …
10th August 2010
Widespread flooding may have pushed food prices higher last month, but sharp falls in inflation are not too far away. … Inflation Monitor …
9th August 2010
The first of China’s data releases for July, the manufacturing PMIs, were downbeat. The economic slowdown is being led by heavy industry, which is bearing the brunt of uncertainty over the outlook for construction. The government campaign against …
5th August 2010
In a series of statements at the end of July, the People’s Bank (PBC) laid out a comprehensive position on the role of the renminbi in China’s broader policy framework. The five articles from Vice Governor Hu Xiaolian discuss the value of a flexible …
4th August 2010
