China Watch

PBOC to Ease Less Aggressively as Debt Problems Intensify after Months of Liquidity Injection

The phenomenon of rising interest rates since early May appears contradictory to Chinese government’s commitment to maintain “liquidity at a reasonably ample level”. PBOC's leaving of the loan prime rate (LPR), China’s policy rate, unchanged in May and June has fueled speculation about a shift in monetary policy stance....

China’s Inflation Declined to Lowest in Over a Year; Trade Data Showed Weakness in Domestic and Global Demand

Headline CPI slowed further to +2.4% y/y in May, from +3.3% a month ago. The market had anticipated a milder drop to +2.7%. The reading is the lowest since April 2019 and the first time below +3% since August 2019. Food inflation continued to ease significantly. Specifically, growth in...

PBOC Pauses in Rate Cutting. Outlook Remains Expansionary amidst Global Demand Uncertainty and Renewed Trade Tensions

PBOC this morning announced to leave the loan prime rate (LPR) unchanged at 3.85%. While this had been widely anticipated, it should not be interpreted as a signal of unwinding monetary stimulus. We believe the pause allows the central bank some time to assess the impact of previous easing...

More Stimuli Needed to Support China’s Gradual Economic Recovery

Industrial production (IP) expanded +3.9% y/y in April, beating consensus of +1.5% growth and a -1.1% contraction in the prior month. The strong recovery was mainly driven by the low base effect. Production of automobile, and machinery and equipment contributed the most to the April recovery. These sectors were...

China’s Inflation Slowed Further in April, Giving Room for Further Easing

Headline CPI eased to +3.3% y/y in April, from +4.3% a month ago. This also marked a two-percentage-point fall from January’s peak. While the major growth driver remained food price, it has been decelerating as the corovavirus outbreak has hurt demand. Food price gained +14.8% y/y last month, easing...

What to Expect from CCP’s Two Sessions?

After two months' delay, the long-awaited “two sessions” will be held in two weeks’ time. The National People’s Congress (NPC) is scheduled on May 22 while the Chinese People’s Political Consultative Committee (CPPCC) is scheduled on May 21. The meetings this year have symbolic meaning from the perspective of...

PBOC Cut Policy Rate to 3.85%, More Easing on the Way

PBOC cut the 1-year loan prime rate (LPR), by -20 bps, to 3.85% today. The move has been widely anticipated as the central bank lowered the 1-year MLF rate by the same size last week. LPR is the best lending rate offered by commercial banks, while the MLF rate...

China’s GDP Contracted the Most in Decades as Driven its Self-Produced Coronavirus

The coronavirus outbreak, started in China, has evolved into a global pandemic, causing great damage to the world economy. The latest data show that it led China to the worst economic downturn on record. Major macroeconomic indicators in March show less significant contraction than a month, a result of...

Moderation in China’s CPI Allows Government to Accelerate Stimulus

Inflation in China eased in March. Headline CPI slowed to +4.3% y/y in March, from a 8-year high of 5.2% in the prior month. The market had anticipated moderation to +4.8%. From a month ago, inflation contracted -4.6%, compared with a +9% gain in February. Both food and non-food prices...

Chinese Government Expected to Accelerate Stimulus Despite Sharp Rebound in PMIs.

China’s official PMIs sharply rebounded in March. Manufacturing PMI jumped to 52, from a record low of 35.7 in February. The non-manufacturing index rose to 52.3, from a record low of 29.6 in February. We suggest to interpret the data with caution as the qualitative nature of the survey...

China’s February Data Slumped, Showing First Sign of Coronavirus Impacts

China’s economic data for February dived, showing for the first time impacts of the coronavirus outbreak on the world’s second largest economy. Originating in China, the coronavirus has now evolved into global pandemic, affecting about 100 countries and territories. The impacts on global economy are not limited to supply chain...

China’s PMIs Dived in February, Just First Glimpse of the Disastrous Impact of Coronavirus Outbreak

China’s PMIs slumped to the lowest on record in February. Both the official and Caixin’s reports show that China’s economic activities were severely hurt by the coronavirus outbreak. Since the number of infected cases spiraled in late January, the Chinese government has implemented measures to control the spread of...

Soaring Inflation Makes PBOC’s Easing Measures More Challenging

Headline inflation in China soared to +5.4% y/y, the highest level in almost a decade, in January. This came in higher than consensus of +4.9% and December’s +4.5%. Once again food, especially pork, price was the key driver of the jump. Food price soared +20.6% y/y, accelerating from +17.4%...

More Rate Cuts Expected as Novel Coronavirus Hurt China’s Economy Severely

Earlier this week PBOC announced monetary easing measures to support the economy, in light of the severity of the novel coronavirus. Concerning the latest move, PBOC announced to cut the 7-day and 14-day reverse repo rate, each by -10 bps, to 2.4% and 2.55% respectively. The -10 bps reduction...

US-China Phase I Trade Deal Signed, Execution & Phase II Negotiations the Next Focus

Signing of the Phase I trade deal marks an end of the beginning the trade war between the US and China. While the deal covers various areas of great concerns to the US, including China’s imports of US goods and services, China’s handling of intellectual properties, technological transfer and...

Low Base and Frontloading Drove China’s Trade Higher in December

China’s foreign trade surprised to the upside in December. Exports rose +7.6% y/y in the last month of 2019, compared with consensus of +2.9%. Meanwhile, imports jumped +13.6% y/y, beating expectations of +9.6%. Both outbound and inbound shipment improved in December from a month ago. Exports in November contracted...

Trade War Continues to Direct Outlook of USDCNY in 2020

As in last year, Chinese Yuan will remain directed by the US-China trade war in 2020. Although China’s economy continues to struggle and PBOC’s monetary policy is tilted to the accommodative side, CNY should stabilize against USD if trade negotiations are smooth. Elevated inflation should keep PBOC cautious in...

Trade Deal and Strong November Data will Not Derail PBOC’s Easing Bias

A number of good news has increased optimism over China. Following announcement of a Phase I trade deal with the US, the latest set of economic data surprised to the upside in November. However, we expect the bullishness will be short-lived. For the year ahead, the government will have...

China’s CPI Soared to +4.5%; Exports Contracted More than Expected

Headline CPI in China accelerated to +4.5% y/y in November, from +3.8% a month ago. The key contributor to strong inflation is fresh vegetable and pork prices. Non-food price climbed +1% y/y from +0.9% in October. Excluding food and energy prices, core inflation steadied at +1.4% y/y. Upstream PPI...

Strong Manufacturing PMI Sent Hope of Stabilization in Chinese Economy

Purchasing Manager Indices (PMIs) suggested that the manufacturing China improved in November. Improvement in manufacturing PMIs signaled that upcoming industrial production data can surprise to the upside. The official PMI improved +0.9 point to 50.2 in November. This marks the first expansion (above 50) since March and the second largest...