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China Economics Update

China Economics Update

Struggling for momentum

China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor. Virus outbreaks are happening with increasing frequency. The housing market remains in a downward spiral. And exports look set to drop back before long. To make matters worse, credit growth has so far been unresponsive to policy easing. More support is on its way but it will probably be too late too little to prevent output from stagnating this year. And once the economy does return to growth, it will be at a slower pace than in the past.

18 August 2022

China Economics Update

Surprise rate cut amid economic woes

The People’s Bank (PBOC) has cut its policy rates in response to a loss of economic momentum. A cut to the Loan Prime Rate (LPR) later this month is now a given and we expect additional easing measures further ahead, though it’s far from clear that this will be sufficient to drive a revival in credit growth.

15 August 2022

China Economics Update

China doesn’t appear to want an economic fight

The trade sanctions introduced by China on Taiwan in retaliation for the visit of Nancy Pelosi are small in scope rather than serious efforts to force Taipei to shift course. China is constrained in the economic pressure it can exert unless it is willing to suffer some economic cost itself. So far it doesn’t seem to be.

3 August 2022
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China Economics Update

Policymakers give up on 5.5% growth

The readout of the Politburo’s quarterly meeting on economic affairs has just been published by state media. It reiterates the need for more policy support but stops short of any major new announcements and largely rehashes existing policy pledges.

China Economics Update

Bond rollout intended to prevent infrastructure slump

Policymakers are reportedly bringing forward some planned government bond issuance from next year to support infrastructure investment in the second half of 2022. This will help avert the slump in investment that was imminent without new funding and should ensure that infrastructure remains a relative bright spot in the economy. But this doesn’t constitute major stimulus that would fuel a significant acceleration in infrastructure spending over the rest of the year.

China Economics Update

The limitations of China’s “new infrastructure” push

Spending on high-tech “new infrastructure” should result in higher returns than adding more highways and railway lines. But it is not as effective a channel for cyclical policy stimulus. And a state-led push into these new, complex sectors won’t deliver productivity gains on the scale that market-driven investment would.  

China Economics Update

What impact would removal of Trump tariffs have?

Cancelling all of the Trump tariffs on China would give a smaller direct boost to China’s export sector than many might think. More important would be the signal a unilateral rollback would give that the US wanted a reset in relations. This would lift investor sentiment towards China along with domestic financial markets and the renminbi. However, there’s no sign that the US wants a reset. Any tariff removal is likely to be limited and its economic and financial market impact very small.

China Economics Update

Why won’t the government help households?

The view that policy support is best directed towards investment rather than consumption is deeply rooted in China. A few token consumer voucher schemes aside, this doesn’t seem to be changing.

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