Gavekal Research
Long Chen
April 7, 2016
To help troubled borrowers, China’s government is embracing debt-for-equity swaps. But while such swaps will reduce the burden on indebted companies and avoid an abrupt deleveraging, they will also load more stress onto bank balance sheets. Beijing will still eventually have to come up with a workable plan to recapitalize banks; this is not it.
Gavekal Dragonomics
April 5, 2016
Growth is slowing, debt is rising, and the government is openly talking about "zombie companies" in key industries. This is today's China, but there are also echoes of 1990s Japan. This issue of the CEQ examines the similarities and differences, and handicaps China’s chances of dodging a Japanese scenario of low-growth, high-debt stagnation.
Gavekal Dragonomics
Thomas Gatley
March 31, 2016
China’s economy is reportedly being dragged down by an army of “zombie” companies—unprofitable firms clinging to life through subsidies. In fact, the data show only about 10% of Chinese firms are truly financially troubled. “Zombies” look less like a huge systemic problem and more like a normal effect of the downturn in housing and heavy industry.
Gavekal Dragonomics
Andrew Batson
March 7, 2016
The aura of technocratic competence that once surrounded China’s leadership is tarnished these days. A recent burst of transparency from top officials has not done much to change that. The bigger problem is that the government has locked itself into a growth target that is not credible, which makes all economic policy less credible.
Gavekal Research
Andrew Batson
February 17, 2016
The signals from Chinese policymakers are mixed. In recent months official rhetoric has taken a harsh turn, with praise for deleveraging and calls for money-losing “zombie” companies to be shut down. At the same time, officials are promising yet more infrastructure spending, and new data show a record surge in bank loans in January.
Gavekal Dragonomics
Andrew Batson
October 6, 2015
With China’s growth heading below the government’s 7% target, policymakers are once again rolling out supportive measures. But will yet more stimulus be enough to arrest the slide in growth and turn around sentiment? In this piece, Andrew explores the potential impact from two conventional and two unconventional options for further stimulus.
Gavekal Dragonomics
Matthew Forney
February 19, 2016
We all know that big swaths of China are suffering, especially areas dependent on the declining coal and steel industries. Matt spent his Chinese New Year break in a poor county of Shaanxi province to see what things are like on the ground. He did not find what he expected: conditions are neither as dire as he feared nor as good as he hoped.
Gavekal Dragonomics
Andrew Batson
January 19, 2016
China’s “two-speed” economy coasted to a moderate slowdown in 2015, with rapid gains in services helping offset a downturn in industry. But industry will worsen further in 2016, and the recent strength in services will prove to be cyclical. We think this slowdown will be gradual, but are watching risks in the financial sector and the job market.
Gavekal Dragonomics
Andrew Batson
November 19, 2015
With China’s industrial sector in a deep slowdown, the services sector has been generating most of the good economic news in 2015. But there is no economic law that makes services immune to the business cycle. Services have their own ups and downs, and while that cycle has helped growth this year, it will provide less of a boost in 2016.
Gavekal Research
Andrew Batson
March 30, 2016
Janet Yellen yesterday confirmed that uncertainty over the global outlook was why the Federal Reserve scaled back expected interest rate hikes. But just what happened in the world to change her mind? Rather than slightly weaker global growth prospects, market turbulence is the more likely culprit—in particular the stress over China’s currency.
Gavekal Research
Long Chen
March 8, 2016
After falling by almost US$300bn in the three months to January, China’s foreign reserves showed signs of stabilizing in February. The slower pace of decline is certainly welcome news for the central bank. But the reduced stress owes a lot to recent dollar weakness, and it is too early to say Beijing is fully in control of its new currency regime.
Gavekal Dragonomics
Long Chen
February 4, 2016
Concerns are rising about China’s big capital outflows, which topped US$700bn in 2015. Yet our analysis shows that China is not experiencing massive capital flight. Unfortunately, this does not matter much to markets. The real problem is that China’s currency regime is losing credibility, and outflows erode its ability to steady the renminbi.
Gavekal Dragonomics
Ernan Cui
March 10, 2016
When China’s labor minister said the troubled coal and steel industries could shed 1.8mn jobs, the news provoked a lot of excited commentary. But this is not 1998 all over again. The government’s layoff plan does not mean China is about to be swamped by a wave of unemployed workers, nor that officials are “getting serious” about excess capacity.
Gavekal Dragonomics
Ernan Cui
February 11, 2016
China’s housing-led slowdown is clearly taking a toll on jobs, with troubled industrial firms laying off millions of workers. Offsetting these losses is the very rapid pace of job creation by the service sector, a fact the government regularly trumpets. But a closer look reveals that most new service jobs are at low-paying small businesses.
Gavekal Dragonomics
Ernan Cui
December 7, 2015
As the downturn in China's investment-driven economy deepens, ever more hope is being placed on consumer spending. But the dynamics of Chinese household spending remain poorly understood. In this concise presentation, we outline the macro factors driving the growth of consumption, as well as the key structural changes.
Gavekal Dragonomics
Long Chen
March 2, 2016
When the central bank cut reserve requirements this week, in its first policy move in four months, confusion resulted. Analysts wondered whether the PBOC’s main priority is supporting the currency or stimulating the economy, and which tools it wants to use. We think its top priority now is maintaining low and stable interbank interest rates.
Gavekal Research
Long Chen
February 25, 2016
The opening of China’s domestic bond market to global investors announced yesterday is a milestone event, which will lead, over time, to a large influx of foreign capital. But in the near term, policy uncertainty and concerns about the currency outlook are likely to outweigh high Chinese yields, so the impact on capital flows will be modest.
Gavekal Dragonomics
Long Chen
November 6, 2015
China has enjoyed a great bull market in bonds in 2015, but concerns are also growing that credit risk is mispriced and that a new bubble is emerging. In this piece we review the big questions on the Chinese bond market and conclude it is not a bubble; short-term government bonds are attractive but the outlook for corporate bonds is less certain.
Gavekal Dragonomics
Andrew Batson, Rosealea Yao
March 14, 2016
The biggest surprise in China’s latest data was the rally in property: housing sales surged and real estate investment picked up in the first two months of 2016. But this improvement is unlikely to be sustained: the turn in property has come far earlier than fundamentals warrant, and suggests the government does not have a firm grip on the market.
Gavekal Dragonomics
Rosealea Yao
February 29, 2016
China’s latest wave of supportive policies for the housing market won’t generate a huge bounce, but they do show the government is happy to use easy credit to keep housing sales going. Helping the market digest the oversupply of new housing is clearly a major priority. But the consequences will be rising household leverage and frothy prices.
Gavekal Dragonomics
Rosealea Yao
November 3, 2015
One of the few recent bright spots in China’s economy has been the recovery in housing sales. Unfortunately, a number of indicators show that recovery losing steam: gains in sales and prices will slow in coming months.
Gavekal Research
Andrew Batson
March 30, 2016
Janet Yellen yesterday confirmed that uncertainty over the global outlook was why the Federal Reserve scaled back expected interest rate hikes. But just what happened in the world to change her mind? Rather than slightly weaker global growth prospects, market turbulence is the more likely culprit—in particular the stress over China’s currency.
Gavekal Dragonomics
Andrew Batson
March 24, 2016
For a country that gained so much from China’s commodity boom, Australia seems quite sanguine about the bust. Mining investment may be falling, but optimism on tourism is rising. So has Australia already switched from the old commodity-driven to the new consumer-driven China? And will this rebalancing also be painless for the rest of the world?
Gavekal Research
Arthur Kroeber
March 16, 2016
A flurry of big cross-border mergers and acquisitions by Chinese companies has left many people scratching their heads. Announced Chinese international acquisitions are on track to exceed US$100bn in the first quarter—almost as much as in the whole of 2015. What is driving this torrent of cash?
Gavekal Dragonomics
Thomas Gatley
March 3, 2016
With the Shanghai market down by nearly half from its peak, are Chinese A-shares starting to get cheap? Unfortunately no: most stocks other than banks are still highly valued. But technology and healthcare firms, many of which trade in Shenzhen, are still good growth stories, and are cheaper relative to the market than they have been for years.
Gavekal Dragonomics
Thomas Gatley
January 27, 2016
For Chinese industry, 2015 was a year of unrelieved pain—and there is little prospect of any turnaround in 2016. Although demand for consumer goods is solid, the heavy industry sector is just clinging on until the construction cycle picks up. Our base case is for a 1% decline in industrial profits this year.
Gavekal Dragonomics
Thomas Gatley
November 24, 2015
China’s stock markets reflect its economy as in a funhouse mirror: consumer and service sectors shrink to midget proportions, while finance and industry swell to giant size. The process of correcting these distortions speeded up in 2015 as industry slumped and services held steady. Progress will likely slow some in 2016, but the trend is clear.
Gavekal Dragonomics
Rosealea Yao
February 3, 2016
China’s coal imports dropped a stunning 30% in 2015—and all signs indicate more declines are coming. Imported coal is taking the brunt of the adjustment in the nation’s energy demand, as the domestic transportation bottlenecks that made imports attractive have eased. We think China will stop being a major net importer of coal in about two years.
Gavekal Dragonomics
Rosealea Yao
December 15, 2015
2015 should go down as a turning point in China's economic history: coal demand is having its biggest drop for 15 years, steel for 20, cement for 25. The previous declines in materials use were one-offs that were quickly forgotten in the ensuing boom; this time, they will be longer lasting.
Gavekal Dragonomics
Rosealea Yao
December 3, 2015
This year statisticians decided China has actually been using about 600mn more tons of coal than previously estimated. The news is a bit awkward for official pledges to cap coal consumption and carbon emissions. But actually these new figures only reinforce our conviction that China is already very close to its peak level of coal demand.
Gavekal Dragonomics
April 5, 2016
Growth is slowing, debt is rising, and the government is openly talking about "zombie companies" in key industries. This is today's China, but there are also echoes of 1990s Japan.
Gavekal Dragonomics
November 10, 2015
In the last two years China has made a bold push to expand its influence in Asia, using both the carrot of well-funded infrastructure diplomacy and the stick of forceful assertion of territorial claims in the South and East China Seas. What explains this newly assertive foreign policy, and what are its effects likely to be?
Gavekal Dragonomics
June 11, 2015
In this special issue of the CEQ focusing on the Chinese company, Matthew Forney lays out the rules of the road for investing in China, and how avoid getting caught by the stereotypes of Chinese companies entrepreneurial miracles or fraud-ridden freak shows. Five profiles offer bottom-up lessons on how Chinese companies work.
Gavekal Dragonomics
Andrew Batson
September 23, 2013
Consumer spending has not been repressed in China, so there is no point in waiting around for it to be finally unleashed. We should not expect China’s consumption to accelerate in the midst of an investment slowdown that is dragging down overall economic growth. China’s real economic problem is not deficient consumption but inefficient investment.
Gavekal Dragonomics
Oliver Melton
November 9, 2010
Depending on who you listen to, China’s leaders are either preternaturally effective and decisive, or incredibly rigid and out of touch. These are cartoonish views that miss how Chinese policymaking is a complex, dynamic process that is constantly refined. In this report we explain how Chinese policymaking works by examining the Five Year Plan.
Gavekal Dragonomics
Francesco Sisci
September 5, 2007
China’s authoritarian state has long had a pact of “no taxation, no representation” with its middle class. Unfortunately, this pact cannot last. To pay for a welfare system that can sustain domestic demand, the tax take must rise. Most of that increase will be paid by the private sector, which will create demands for greater accountability.