China: Mixed Early 2025 Data and Policy Stimulus

March 17, 2025 9:17 AM UTC

Headline industrial production and retail sales were better than expected, but the breakdown of the data shows a mixed picture for consumption and residential investment remains a negative drag on GDP before the 20% U.S. tariffs hits.  Meanwhile, though the weekend policy announcement on boosting d

China: PBOC Slow Cuts with 5% Nominal GDP

March 11, 2025 8:45 AM UTC

•    The PBOC will likely cut slowly and gradually, as China seeks to avoid Yuan depreciation that could worsen the trade war with the U.S.  Additionally, MOF last week forecast nominal GDP of 5%, which with a real GDP target of 5% means that MOF is also forecasting zero inflation.  Close to

China: Only Moderate Fiscal Stimulus

March 6, 2025 7:55 AM UTC

China announced some fiscal stimulus to help meet the expected 5% GDP target for 2025.  Overall, we have not been surprised by the fiscal stimulus measures announced so far from the March NPC, that have been towards the lower end of expectations.  However, officials on Thursday have hinted that mo

China: How Much U.S. Trade and Taiwan Pressure?

February 28, 2025 9:05 AM UTC

·       Trump eventually wants a trade deal with China and this could occur by the end of 2025, but the U.S. will ask for penalties if targets for U.S. imports to China are not met and this will lead to difficult negotiations. Reciprocal and product specific tariffs on China are also likely i

China: More U.S. Tariffs, No Yuan Depreciation?

February 25, 2025 9:30 AM UTC

•    China is currently reluctant to see Yuan depreciation as it wants to get the U.S. to the negotiating table for a revised phase 1 trade deal and also over concerns about domestic capital outflows.  Cuts to the 7-day reverse repo rate are now likely to be in 10bps steps and we look for the

China: Private Sector Balance Sheet Recession?

February 14, 2025 10:45 AM UTC

  Overall, we maintain the view that parts of China’s household sector are showing signs of a balance sheet debt consolidation, due to the excess buildup of debt in the past 20 years relative to disposable income.  The non-financial corporate sector is more difficult to interpret, due to strengt

Fixing The U.S. Trade Deficit

February 6, 2025 2:30 PM UTC

  New U.S. trade deals will likely make slow progress in reducing bilateral trade deficits as the underlying drivers behind the U.S. trade deficit are macro forces.  While the U.S. economy outperforms other major trading partners; the value of the USD remains overvalued and as long as tariffs are

China/U.S. Trade War and next To Talks?

February 4, 2025 10:02 AM UTC

China’s targeted and measured counter tariffs against the U.S. are designed to push the U.S. towards the negotiating table on the wider issue of the U.S./China trade deficit.  Negotiating will likely start into the spring, but negotiating will be tough as the U.S. wants a phase 2 deal with new ob

Can Tech and Productivity Cushion China’s Long-Term Growth Slowdown?

February 3, 2025 3:45 PM UTC

 While innovation from China’s technology initiatives can provide help to cross over productivity, the benefit will likely only be modest due to the downgrading of the private sector in China and the lack of openness to inward trade.  The structural slowdown in capital productivity will dominate

Yuan Decline: Waiting to Offset Trump Tariffs?

January 7, 2025 8:35 AM UTC

China’s authorities are reluctant to see too quick a decline in the Yuan, as it could accelerate capital outflows and cause political unrest for the communist party.  Thus the preference remains for controlled declines in the Yuan with declines followed by periods of forced stabilization.  We do

EM Government Debt: BRICS Divergence

January 2, 2025 8:05 AM UTC

   Brazil and South Africa suffer from debt servicing costs outstripping nominal GDP, which will remain a concern unless a consistent primary budget surplus is seen – though S Africa enjoys a much longer than average term to maturity than Brazil.  India and Indonesia, in contrast, enjoy nominal

China Outlook: Construction and Trade Headwinds v Policy Stimulus

December 17, 2024 11:00 AM UTC

  We do see a package of stimulative fiscal policy measures for 2025 including Yuan1-3trn infrastructure spending; Yuan1trn funds to buy completed homes for affordable housing and Yuan1trn capital injection to the big six state banks. Some modest measures for low-income households and to boost soci

China Politburo and CPI Argue For More Easing

December 9, 2024 9:01 AM UTC

China December Politburo statement has signalled a step up in easing, with monetary policy to become “moderately loose” for the 1st time since the GFC. We now look for 40bps of 7-day reverse repo rate cuts across H1 2025, though a surprise move cannot be ruled out for December – we see a 50bps

China Slowing LT Growth: Labor Force and Productivity Problems

November 27, 2024 11:05 AM UTC

China labor force will likely not grow in the remainder of the decade, due to falling population; reluctance to consider large-scale inward immigration; a female participation rate that is high by EM standards and limited growth in employment among those over 55.  Meanwhile, education and rural to

China Yuan10trn Package: Shifting Debt Not Stimulus

November 11, 2024 10:06 AM UTC

Details of the Yuan10trn fiscal package show that it is all directed at a debt swap for LGFV’s and repackaging hidden local government debt.  This will have little net fiscal stimulus.  True fiscal stimulus will be seen for 2025 GDP growth, but it could be delayed until further details are seen

Will China Deflation Depress GDP?

November 4, 2024 7:05 AM UTC

China most likely faces aggressive disinflation rather than Japan style deflation that depress GDP. China is a middle income country with incomplete urbanization/consumption, while China authorities appear more proactive than Japan in the 1990’s.  However, support for households remains light, wh

China Big Banking System: Lessons from Japan/GFC

October 24, 2024 10:50 AM UTC

The proposed Yuan1trn capital injection for the six largest banks would be pre-emptive, while China is also quick to merge weaker/failing small to mid-sized banks. However, rising NPL’s; plus, low net interest margins with low policy rates; low nominal GDP and pressure to rollover LGFV/SOE debt wi

China Corporate Debt Deleveraging

October 21, 2024 10:45 AM UTC

Private companies ex property developers have seen a small pay down of debt, but the largest remaining portion of non-financial debt ex LGFV is central and local SOE’s.  They have low profitability and have shown few signs of increased leverage.  This leaves the onus on fiscal policy.  

China September Data Rotates Higher, But

October 18, 2024 7:30 AM UTC

Q3 GDP and September monthly figures were slightly better than expected. Combined with a speed up of local government spending in Q4 and more completion of uncompleted homes, we change our 2024 GDP forecast to 4.8% v 4.6%.  However, despite a further Yuan1.5-2.0trn of fiscal stimulus to come, we st

U.S. Tensions for China: Protected by BRICS and BRI?

October 15, 2024 9:30 AM UTC

BRICS can provide a political buffer but not economic, as BRICS are still searching for practical areas for cooperation.  However, Donald Trump universal tariffs threats could focus BRICS on more intra EM trade. BRI has already helped to redirect China exports to EM countries, despite the slowdown

China Fiscal Stimulus: Details to Follow

October 14, 2024 8:37 AM UTC

Further details of the size of extra central government spending/scaled up local authority purchases of unsold complete homes for affordable housing should be seen late October/early November from the National People Congress.  We estimate Yuan1.5-2.0trn in total of extra spending, which leads us t

China and Japan Debt Compared

October 10, 2024 1:35 PM UTC

China housing crisis will likely mean that household debt/GDP flat lines in the coming years like Japan after 1990 and be a headwind for consumption.  Meanwhile, the downturn in residential construction is already greater than that experienced by Japan after 1990 and in itself will be remain a stru

China: Any Lessons from the 1997-98 Asian Crisis?

October 3, 2024 1:30 PM UTC

Overall, the warning from slow real credit growth on reduced credit supply and demand is the main lesson from the Asia crisis 1997-98.  China High FX reserves; low borrowing overseas and dominance of domestic investors in Yuan markets argues against a currency crisis.  Asia widespread banking cris

China Outlook: Unbalanced Growth and Slowing

September 24, 2024 8:54 AM UTC

      Growth is benefitting from momentum in public investment/exports and high tech production.  However, domestic demand is slower and this is a drag on H2 2024 and 2025 growth prospects.  Aside from the ongoing negative drag from the residential construction crisis, consumption is also softe

China Steps Up Support, But Not a Game changer

September 24, 2024 8:39 AM UTC

China has surprised and cut the 7 day reverse repo rate by 20bps to 1.5%, with a 50bps cuts in the RRR rate.  Combined with other measures this is a step-up in support and could help GDP on the margin, but the measures are not game changers as monetary policy is currently ineffective.  While furth

China Banking Stress Tests: The Good, The Bad and the Ugly

September 18, 2024 8:05 AM UTC

The good news is that China’s 19 major domestic systemically important banks (D-SIB’s and 72% of loans) hold up well under most solvency and liquidity tests, though some capital shortfalls start to appear with a moderate or severe NPL sensitivity shock scenario.  The safety net would likely be

China: Weak August Data

September 16, 2024 6:58 AM UTC

China August data was worse than expected and confirms the weak trend in H2, with retail sales a real worry. The government risks missing the 5% growth target for 2024 and targeted fiscal policy moves are likely, but need to be implemented quickly.  10bps cut in the 7 day reverse repo rate is also

China Equities: More of the Same or Game changing Policies

September 9, 2024 9:15 AM UTC

 We remain strategically underweight China Equities in global and EM equity baskets, due to the structural slowing of growth and low EPS prospects. Event risk around the U.S. presidential election will also start to be considered.  Further targeted policies from China authorities could cause inter

China Harder Landing Scenario

September 2, 2024 10:55 AM UTC

 We see a 30% probability of a harder landing in China GDP growth in 2025, which we most likely be in the 3-4% region but could persist into 2026 (Figure 1).  A large than projected slowdown in consumption would be a key concern, alongside persistently moderate negative deductions from residential

China Consumer Volatility

August 28, 2024 1:30 PM UTC

China consumption patterns are divergent; slowing and becoming more volatile at a sub sector level.  Less certainty over new employment and wage growth, plus wealth worries over housing are some of the causes.  We forecast GDP to slow in H2 and be 4.0% in 2025.

China Housing Bailout: More Needed

August 21, 2024 9:00 AM UTC

Though China’s authorities have taken some action to help the residential construction sector, the negative drags from the huge excess completed housing and uncompleted projects continues to weigh directly on the construction/steel and cement sector and consumer confidence. Aggressive policy actio

China Data: Soft Start to Q3

August 15, 2024 6:40 AM UTC

Overall, the July data is consistent with our forecast of a weaker H2 and we still look for 4.7% GDP growth for 2024.  The data is also consistent with our forecast of 4.0% in 2025 GDP growth.  Consumption behavior could stall further and cause more of a drag than we anticipate and we now see a 30

China: The Squeezed Middle and Bottom 50%

July 23, 2024 8:15 AM UTC

Uncertainty over income and employment, adverse wealth effects from lower house prices, plus growing risk aversion, will likely mean that consumption continues to struggle. This is one of the key reasons why we forecast slower H2 GDP growth and look for 4% in 2025.

China: Surprise 7 Day Reverse Repo Rate Cut

July 22, 2024 8:41 AM UTC

China 10bps cut in the 7 day reverse repo rate and 1 and 5yr Loan Prime Rate (LPR) was sooner than expected, as a move had not been anticipated until the Fed cuts rates.  However, this is not the start of a new aggressive policy phase, but rather a tactical move given the targeted nature of easing.

China: Retail Sales Drags Q2 GDP

July 15, 2024 7:33 AM UTC

We are revising down our 2024 GDP forecast from 4.9% to 4.7%, both due to the weaker than expected Q2 GDP figure but also the weak underlying momentum of consumption.  Some further targeted policy measures are likely in the coming months, but will struggle to lift economic momentum.

China: Weak CPI and M2 Trends

July 10, 2024 7:27 AM UTC

China disinflation process is clear in the June CPI data, with excess production and soft consumer spending producing a lower than expected outcome.  Combined with weak M2 money growth, parts of China economy remain weak and point to a softening of GDP growth in H2.  However, policy action will li

China: 3rd Plenum Incremental Not Game Changing

July 2, 2024 8:10 AM UTC

The 3 plenum July 15-18 will likely see some additional measures that will support or stimulate China economy.  However, they are unlikely to be game changers, such as a Yuan2-4trn program of buying most unsold homes or structural increase in the unemployment/health and pension safety nets to free

China Outlook: 2024 on Track, but 2025 Headwinds

June 19, 2024 9:35 AM UTC

Public investment and industrial production in high tech and renewables are helping to support growth and should get the economy close to 5% in 2024.  However, underneath the surface, consumption is slowing, private sector investment and employment growth is sluggish, and residential property inves

China Data: Mixed Momentum and No MTF Cut Until October

June 17, 2024 6:59 AM UTC

Overall the May data suggests that enough momentum exists for Q2 GDP to be above 5.0% Yr/Yr, which given the Q1 GDP figure means that the odds are good that the 2024 5.0% GDP target can be meet.  However, we see a softer of H2 GDP and 4.0% GDP in 2025, given weak domestic demand is unlikely to chan

China CPI: Core Slows and 10bps June 17 MLF Cut?

June 12, 2024 7:34 AM UTC

 China disinflation is clear in the latest numbers for May, with core falling 0.2% on the month.  Further stimulus will likely arrive in the form of monetary easing.  While it is a close call, we look for a 10bps cut in the medium-term lending facility rate (MLF) from 2.50% on June 17.    

China Finance Weakest Links: Small Banks and Property Finance

June 3, 2024 9:19 AM UTC

China authorities appear to have the financial stability spill over from the property sector until control currently, through a combination of direct support for housing and forced mergers of weak banks (mainly rural so far).  This game plan will likely be followed for the next few years. However,

China: Lopsided Growth and New Housing Measures

May 17, 2024 6:54 AM UTC

Overall, the April industrial production suggests Q2 GDP should be reasonable, but weak retail sales suggests H2 2024 can be disappointing. We stick with a 4.6% forecast for 2024 GDP growth.    

China: Too Much Debt In Some Sectors

May 15, 2024 9:55 AM UTC

While part of corporate debt is quasi government (SOE and LGFV’s) and China creditors can be pursued to rollover by the authorities for larger borrowers, households and part of the private sector are focused on the previous buildup of debt.  With China authorities reluctant to aggressive ease fis

China RRR and Rate Cuts

May 13, 2024 7:54 AM UTC

The latest China money supply and lending figures show that private household and business lending is very subdued.  More need to be done to boost credit demand as well as credit supply.  However, the authorities desires to avoid too much Yuan weakness will likely mean that the next move is a 25bp

China Equities: A Tactical Play

May 8, 2024 2:20 PM UTC

China equities can see a tactical bounce of 5-10% in the coming months.  Cheap valuations and  underweight global fund positions means that the scale of pessimism only has to get less bad on the economy and China authorities attitude towards businesses.  While we see a tactical opportunity, we do

EMFX: Diverging On Domestic Forces Not Less Fed Easing Hopes

May 3, 2024 10:45 AM UTC

While U.S. economic developments, plus Fed policy prospects, will be important in terms of EM currency developments, domestic politics and fundamentals will also be decisive. These can keep the South Africa Rand volatile in the remainder of 2024, given the risk of a coalition government and African

China Politburo: Help for Housing, But No Game changers

May 2, 2024 10:50 AM UTC

Politburo statement in late April suggests extra support for residential property.  However, we see this as being incremental rather than any game changers and we still see residential investment remaining a negative drag on 2024 GDP growth.

China: Depreciation Rather Than Devaluation

April 29, 2024 1:00 PM UTC

We feel that a devaluation of the Yuan is unlikely in 2024, both to avoid potentially politically destabilizing capital outflows but also to avoid upsetting the next U.S. president.  Policy is geared more towards controlled depreciation to help competiveness but reduce other risks.  The Yuan has a

China: Q1 Upside Surprise, but March Disappoints

April 16, 2024 8:33 AM UTC

Q1 GDP upside surprise was driven mainly by public sector investment.  With the government still to implement the Yuan 1trn of special sovereign bonds for infrastructure spending, public investment will likely remain a key driving force.  However, the breakdown of the March data show that retail s