Wed, Jun 29, 2022 @ 21:37 GMT

China Watch

PBOC Cut Policy Rate as Economic Recovery Hampered by Pandemic and Power Shortage

China is going against the global tide of normalization of monetary policy. The PBOC announced to cut the one-year loan prime rate (LPR) by -5 bps to 3.8%, first time April 2020. This, together with the reduction in RRR and increase RRR on foreign currencies earlier this month, indicates...

PBOC Cut RRR; More Easing is Expected to Boost Recovery

The PBOC announced to cut the reserve requirement ratio (RRR) by -50 bps, effective December 15. Yet, the reduction will not apply to financial institutions with existing RRR of 5%. Releasing about RMB 2 trillion in long-term liquidity, the amount is not significant but sent a signal that more...

November PMIs Reveals China’s Fragile Economic Outlook

Both official and Caixin’s PMI reports suggest that China’s economic recovery remains fragile. Slipping into the contractionary territory, Caixin’s manufacturing PMI dropped -0.7 point to 49.9 in November. The official manufacturing PMI, however, climbed +0.9 point to 50.1 during the month, reclaiming expansion for the first time in 3...

China’s Economic Outlook Remains Dismal Despite Some Recovery in October

The latest of data for October revealed fragility of China's economic recovery. Although growth of both industrial production and retail sales beat consensus, the momentum appears weak. Property developments would continued to be hampered by government's erratic change in policy and debt problems in the sector, hurting overall fixed...

China’s Trader Surplus Soared to Record High. 32 countries Scrapped Preferential Treatment amidst China’s Twisting of Trade Rules

China’s trade surplus soared to a record high of US$84.54B in October. Exports rose +27.1% y/y in October, down from +28.1% a month ago but exceeded consensus of +22.8%. Imports accelerated to +20.6% y/y from +17.6% in September. This, however, missed consensus of +26.2%. Concerning exports, shipment to EU jumped...

China’s Government is to Blame for Disappointing Growth. Fourth Quarter Not Likely Better as Power and Regulatory Problems Deepen

China's economy falters. GDP expanded +4.9% y/y in 3Q21, weaker than consensus of +5% and +7.9% in the prior quarter. From a quarter ago, the economy climbed only an annualized +0.8%. Power shortage, policy change, uncertainty about the pandemic were to blame for the disappointment. Without quick fixes to these...

China’s Retail Sales Growth Declined Sharply, Slowdown in 2H21 Likely Worse than Previously Anticipated

The latest set of economic data reveals that China’s slowdown worsened. The most disappointing reading comes from retail sales growth which moderated to +2.5% y/y in August, compared with consensus of +7.1% and July’s +8.5%. The slowest growth in 12 months can be attributed to delta variant outbreak and...

Disappointing PMI Suggests PBOC will Ease Further. Policy Divergence to Drive CNY Lower vs USD

The latest data revealed that China’s economy continued to lose momentum. The PMI report from the National Bureau of Statistics (NBS) showed disappointment in both manufacturing and services activities. Stability of the renminbi (a.k.a. Yuan, CNY) is mainly due to government’s control and is not reflective of the headwind...

PBOC Left Policy Rate Unchanged. Further Easing Inevitable as Economy Prone to Weaken in Second Half

PBOC left the loan prime rate (LPR) unchanged at 3.85% in July. The inaction does not suggest that the current monetary policy is appropriate. Weakness in economic activities is expected to exacerbate in the second half of the year, thanks to the resurgence of the pandemic and the lingering...

China’s Mild Inflation Paves Way for Further PBOC Easing

Headline CPI eased to +1% y/y in July from +1.1% a month ago. From a month ago, inflation rose +5.3%, compared with +1.8% in June. This suggests that the slowdown in the year-over-year data was mainly due to high base. Food inflation contracted -3.7% y/y, after dropping -1.7% in...

PBOC Likely to Ease Further, Adding to Renminbi’s Downside Bias

Renminbi has been range-bounded against the US dollar since June. Traders in the Chinese currency has turned cautious after People’s Bank of China (PBOC) surprisingly reduced the reserve requirement ratio earlier this month. The move was contrary to the broad theme of monetary policy normalization in major central banks...

China to Continue Curbing Excess Strength in Renminbi

Losing -1.8% month-to-date, CNY has erased much of the gain made against USD since the beginning of the year. While the broadly based USD rally after the June FOMC meeting is the major driver, PBOC’s intervention has also prevented the renminbi from having meaningful gains. In April and May,...

China’s Recovery Slowed in May amidst Resurgence of Pandemic

China’s major economic data missed expectations in May. Industrial production (IP) expanded +8.8% y/y in May, worse than consensus of +9.2% and April’s +9.8%. Retail sales growth decelerated to +12.4% y/y, from +17.7% in April. The market had anticipated a +14% growth. Fixed asset investment (FAI) gained +15.4% y/y...

China PMI Reports Suggest that Exports Growth Eased while Price Pressure Intensified

The latest PMIs reveal that China’s economic activities eased in May. The Caixin services PMI eased to 55.1 in May from 56.3 a month ago, while the manufacturing PMI increased marginally, by -0.1 point, to 52.The detailed report suggests that new business slowed which price pressures intensified. The situation...

PBOC Seeks to Curb CNY Appreciation by Withdrawing FX Liquidity

People’s Bank of China (PBOC) announced to increase of FX deposit reserve requirement ratio (RRR) to 7% from the current 5%, effective June 15. The move, together with recent comments from official, suggests that the central bank is getting uncomfortable with recent appreciation in renminbi (RMB, CNY). We believe...

China’s Growth Slowed Across the Board in April

China’s April data sent a mixed message about the economy. Retail sales expanded +17.7% y/y in April, significantly weaker than consensus of +25% and March’s +34.2%.  Urban fixed asset investment (FAI) growth moderated to +19.9% in the first 4 months of the year, from +25.6% in 1Q21. The market...

China’s Growth Momentum Accelerates Further in Second Quarter, as Shown in Latest PMI and Trade Data

The latest data suggests that China’s economy continues to improve in the second quarter. The Markit/Caixin services PMI increased to 56.3 in April, highest since December 2020. The reading also beat consensus of 54.2 and March’s 54.3. Separately, China's trade surplus tripled in April, compared with a month ago. Markit/Caixin...

China’s Economic Activities Expanded Strongly in March. Trade Frictions and Pandemic Remain Key to Outlook

China’s official data suggest that the country’s economy recovered significantly in March. PMI readings for all of manufacturing, services and construction activities improved strongly. While seasonal factor (low base effect in February) played a role, the strong first quarter reading signals that economic recovery remains underway. Key risks are...

China Economic Activities Expanded Significantly, Mainly Due to Low Base Effect

China's macroeconomic data for the first two months of this year have delivered a mixed message. While growth in industrial production (IP), retail sales and urban fixed asset investment (FAI) all exceeded 30% when compared with the same period of last year, this was driven by the exceptionally low...

China PMIs Affirm Broad-based Slowdown in Activities

China’s PMI readings eased further in February, signalling that economic growth is losing steam. However, vaccination program worldwide is sending hopes that global economic recovery will accelerate later in the year. This would benefit China which is the world's largest exporter. Caixin’s services PMI slipped -0.5 point to 51.5 in...