Gavekal Dragonomics
May 25, 2018
The US dollar is rising, so are US interest rates, and China’s current account balance is deteriorating. So the renminbi should be weakening, but it is not. In this piece, Chen Long argues that a recent pickup in capital flows is the cause of this strength, but suspects the central bank will not want to see much more sustained appreciation.
Gavekal Dragonomics
May 23, 2018
The story of China’s urbanization has long been the migration of people from the country to the cities. Not anymore: as Ernan explains, rural migration has slowed sharply, and is being replaced by the reclassification of rural areas into urban ones. Policymakers now prefer this “local urbanization,” even though it delivers less income growth.
Gavekal Research
May 17, 2018
From June 1, China’s domestically-listed A-shares will be included in the MSCI Emerging Markets index, bringing the onshore market to the attention of many global investors for the first time. In this piece, Thomas examines recent developments in the A-share market, and outlines the promises and pitfalls of investing under China’s “regulatory firestorm”.
Gavekal Dragonomics
May 1, 2018
The strategy behind China’s financial overhaul is becoming clear. It is helping banks by allowing an extended transition to a new set of rules. But prosecutions of executives are also ramping up. This is the opposite of what some Western countries did after the 2008 crisis: people, not institutions, are paying the price for financial risk-taking.
Gavekal Research
April 18, 2018
The Chinese central bank is no longer in full policy tightening mode. That’s good news for Chinese bank shares. Shortly after government statisticians released economic data for the first quarter on Tuesday, the People’s Bank Of China announced a 100bp reduction in bank reserve requirement ratios.
Gavekal Dragonomics
April 12, 2018
China’s policymakers have for the first time called for reducing the total debt-to-GDP ratio. This shift has raised worries that monetary policy could get tougher, on top of the tightening of financial regulation that is already underway. In this piece, Long explains that no shift in policy is imminent; if anything, easing is getting more likely.
Gavekal Dragonomics
April 18, 2018
China’s central bank has tweaked monetary policy to soften the slowdown in credit growth. The RRR cut continues its strategy of managing liquidity to limit the economic impact of the campaign against financial risk. Other data for March still point to a moderate growth slowdown in 2018, particularly given the continued strength in property.
Gavekal Dragonomics
April 11, 2018
As China’s producer price inflation cools and its consumer price inflation picks up, one might expect corporate margins to be fattening, as cost pressures wane and pricing power strengthens. In fact, the opposite is true: margins have been fat, and are now getting tighter. In this piece, Thomas explains how inflation really affects margins.
Gavekal Dragonomics
March 15, 2018
China’s first data release of 2018 delivered a couple of surprises, with a big jump in industrial value-added and a pickup in real-estate investment. But neither amounts to a convincing signal that the economy is actually re-accelerating. The most likely outcome is still a moderate growth slowdown driven by a shallow downcycle in property.
Gavekal Dragonomics
March 8, 2018
A property tax is back on the Chinese government’s agenda: after being postponed in 2017, the long-discussed tax was brought up again at this week’s legislative session. The draft law could come in 2018, with actual taxes being levied by late 2019 at the earliest. But Rosealea expects this to be largely a non-event for the property market.
Gavekal Dragonomics
February 28, 2018
Since markets reopened after the Chinese New Year holiday, the prices of commodities tied to China’s construction cycle have been picking up. This optimism could be justified: construction fundamentals are solid and policy interventions are mostly positive. In this piece, Rosealea explains the upside risks for construction activity in early 2018.
Gavekal Dragonomics
November 30, 2017
China’s government has a new priority for the housing market: boost the quantity and quality of rental housing. As more middle-class Chinese are priced out of top-tier cities, promoting rentals is a new attempt to address housing affordability. In this piece, Rosealea explains the latest policy push and how it will affect property developers.
Gavekal Dragonomics
March 20, 2018
China’s legislature has approved the creation of a national “supervision” system, an arm of government equal to the executive, legislative and judicial branches that is charged with overseeing the vast public sector. As Yanmei explains, the new system transforms Xi Jinping’s signature anti-corruption crusade into something even more ambitious.
Gavekal Research
March 19, 2018
China’s top economic team for the next five years was released this morning, and the theme seems to be “steady as she goes”, with a vote of confidence for experts in their fields. Chen Long has looked at the list, which includes a new PBOC governor, and offers his take on what this means for financial policy in the years ahead.
Gavekal Dragonomics
March 14, 2018
China yesterday unveiled a sweeping plan to reorganize its central government. In this piece, Yanmei explains how Xi is streamlining administration and empowering new agencies to carry out his distinctive domestic-policy priorities of environmental protection, risk control, and poverty alleviation, as well as his assertive foreign policy.
Gavekal Dragonomics
April 4, 2018
It’s been a wild winter for China’s steel industry, with huge swings in output and prices. The main culprit is the aggressive official campaign to reduce air pollution—and the industry’s creative responses to it. Their back-and-forth has not hurt underlying growth much, but the resulting volatility in steel prices is not going away.
Gavekal Dragonomics
March 28, 2018
The rebound in commodity prices since 2016 has been a boon for much of China’s industrial sector—but coal-burning power plants have been big losers. Coal prices cannot go much higher without causing serious financial distress. This means that policy should now be shifting to favor power producers, by ensuring coal prices do not climb further.
Gavekal Dragonomics
February 22, 2018
What are the odds that China has a surprise jump in inflation this year? In China, surges in the CPI are usually driven by food—particularly highly cyclical pork prices. But while food inflation is likely to turn positive this year, Ernan argues that the odds of an inflation spike are low, as farm consolidation has tamed the pork price cycle.
Gavekal Research
February 13, 2018
Though onshore Chinese stocks did not escape the rout of global markets in recent weeks, the real trigger for the meltdown onshore was heightened investor anxiety over Beijing’s financial regulations. Thomas and Ernan reckon that after the dust settles, benign fundamentals and attractive valuations should set the market back on its upward track.
Gavekal Dragonomics
January 29, 2018
2017 was a great year for China’s industrial sector, with profits up 21%, but the gains were highly concentrated in mining, metals and materials. This pattern has a mix of important consequences, as Thomas explains in this piece: it’s good news for financial risk, less good news for households, and bad news for corporate investment.
Gavekal Dragonomics
January 9, 2018
Amid the ups and downs of China's recent investment cycles, one trend has stayed constant: the slowdown in private-sector investment. In this piece, Thomas shows that a key problem is state firms routinely delaying payments to their private suppliers, forcing them to hold huge reserves of working capital that can’t be productively invested.
Gavekal Dragonomics
April 20, 2018
China has moved to rid itself of a longstanding statistical embarrassment, replacing its discredited unemployment data with a new survey based on international standards. But as Ernan explains, the old problems have not gone away: the new jobless rate is still implausibly low and stable, and likely still subject to political manipulation.
Gavekal Dragonomics
December 7, 2017
China’s busy and ambitious parents have driven a huge boom in private preschools, with the number of students roughly tripling over the past decade. But the sector is now clouded by allegations of child abuse, which will only strengthen a shift to tougher regulation and public provision of preschools. For now, the private preschool boom is over.
Gavekal Dragonomics
November 13, 2017
It was a busy weekend for China’s online retailers, who reported huge sales numbers for their November 11 promotional events. Alibaba’s aggressive strategy is helping uphold its dominance even as market growth slows, and online retail integrates with offline. In this piece, Ernan cuts through the wave of publicity with three simple points.
Gavekal Dragonomics
May 9, 2018
It is still possible that the US and China will strike a deal to avert threatened tariffs. But as Arthur argues in this piece, any deal will be mostly cosmetic. The tension between the two is not mainly about trade, but about China’s challenge to US global dominance. The US will almost certainly keep trying to counter China’s efforts to gain power.
Gavekal Dragonomics
April 26, 2018
With North Korea suddenly seeming happy to negotiate with its old adversaries, some analysts reckon the regime is buckling under US pressure. Yanmei says this is wishful thinking. Kim Jong-un probably believes he has achieved nuclear deterrence—and he is most unlikely to relinquish it. China and South Korea just want to avoid a US military strike.
Gavekal Dragonomics
April 24, 2018
In countries involved with China’s Belt-and-Road Initiative, there is a growing realization of the risks to signing up for the scheme. As debt has mounted and fears of economic dependence have increased, a backlash has begun. But as Tom explains, the lure of easy Chinese capital is a dangerous habit that many countries will struggle to kick.
Gavekal Dragonomics
January 9, 2018
Amid the ups and downs of China's recent investment cycles, one trend has stayed constant: the slowdown in private-sector investment. In this piece, Thomas shows that a key problem is state firms routinely delaying payments to their private suppliers, forcing them to hold huge reserves of working capital that can’t be productively invested.
Gavekal Dragonomics
June 27, 2017
At the close of 2016, Xi Jinping’s government vowed to speed up economic reform, and declared “breakthroughs” would be made in overhauling state-owned enterprises. Half a year on, these bold claims have not been matched by actions. The numerous reform trials can give the impression of activity, but real change remains a distant prospect.
Gavekal Dragonomics
May 3, 2017
Optimism about China’s growth is now higher than it has been for years, after the notable recovery in the last couple of quarters. But in this piece, Andrew argues China still can’t escape a further growth slowdown, because its continued reliance on state-driven investment is sapping productivity growth and undermining the private sector.
Gavekal Dragonomics
November 28, 2017
In our annual review of the Chinese consumer, Ernan outlines the short-term outlook and longer-term trends in household spending. This chartbook explains why consumption growth has been a bit disappointing in 2017, why the outlook for 2018 is better, what are the drivers of consumption upgrading, and how the transition to online is playing out.
Gavekal Dragonomics
November 2, 2017
In her annual overview, Rosealea summarizes the outlook for the housing market and construction activity in China. This concise chartbook reviews the drivers of growth in 2017, digs into the key indicators and explains the core scenario for 2018: a modest correction in housing sales and prices, and a gradual slowdown in construction activity.
Gavekal Dragonomics
August 17, 2017
This chartbook outlines the recent core trends in China’s corporate sector. There has been a major rebound in revenues and profits, but most firms are using this to repair balance sheets rather than boost capex. So leverage is down and debt servicing ability is up. But the profit cycle is now likely at its peak, as is firms’ ability to deleverage.
Gavekal Research
April 18, 2018
During yesterday’s monthly call, Arthur Kroeber addressed rising geoeconomic and geopolitical tensions between the world’s two biggest economies.
Gavekal Research
April 13, 2018
At Gavekal’s seminar in Hong Kong this week, Arthur Kroeber, Rosealea Yao and Nick Andrews presented their latest views on the brewing trade war between the US and China, Chinese growth and the property market outlook, and how to capture European growth.
Gavekal Dragonomics
April 5, 2018
In this lively presentation from our recent London seminar, Tom Miller outlines the dramatic political changes that have been taking place in China. He explains what Xi Jinping’s new status means for economic policy and governance, and how the links between the Communist Party and the state are being strengthened.