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
August 15, 2017
The first monthly data for the second half of 2017 demonstrated that China’s growth momentum is indeed softening. All major indicators were lower in July than in June, dragged down by cooling housing sales and construction. But prices of steel and commodities remain quite elevated, thanks to government interventions on the supply side, which will support corporate margins and profits.
Gavekal Research
August 14, 2017
A persistent American fantasy of hardliners is that threats of force will magically cause other countries to abandon their interests and cave in to US demands. The current occupant of the White House is taking this magical thinking to new heights in his approach to Asia. But thankfully, despite the dire headlines, the real-world impact is small.
Gavekal Research
July 17, 2017
Official statements following the conclusion of Beijing’s National Financial Work Conference signal that the recent tightening cycle has now peaked and that market interest rates are likely to fall from current levels, argues Chen Long. The story remains that while Chinese reflation has peaked, the ensuing slowdown will be moderate and gradual.
Gavekal Dragonomics
May 15, 2017
The main source of uncertainty in the Chinese economy right now is the financial crackdown launched in March. In this piece, Andrew looks at the April data and finds that the regulatory campaign’s impact has so far been contained. This supports our call that the regulatory stress is a bigger problem for asset markets than for the real economy.
Gavekal Dragonomics
April 26, 2017
Chinese financial officials are stirring up a regulatory storm with their new crackdown on various forms of speculation, arbitrage and risky behavior. Though much is still unclear, the campaign is likely to lead to tighter liquidity and slower credit growth. But the more immediate risk is its impact on the domestic equity and bond markets.
Gavekal Dragonomics
July 5, 2017
It’s no secret that managing the housing market is a core part of China’s economic policy. But as Rosealea explains in this piece, government’s role in supporting housing sales is now even greater than most realize. The government is buying millions of unsold housing units directly from developers, and the scale of the program is only increasing.
Gavekal Dragonomics
June 20, 2017
China’s housing market is proving quite resilient this year, with sales growth perking up in May. In this piece, Rosealea argues the current sales recovery is broad-based: growth is strong in both central and coastal provinces. While restrictions on speculative purchases are spreading to some smaller cities, this should have only a moderate impact.
Gavekal Dragonomics
May 24, 2017
China wants to build a new satellite city to take over Beijing’s “non-capital functions,” and their associated workers. In this piece, Tom Miller examines the Xiong’an New Area and the government’s grand plans to cap Beijing’s population and spread wealth to surrounding regions. He finds the economic benefits are unlikely to outweigh the costs.
Gavekal Dragonomics
June 2, 2017
The key event in China’s political calendar is now just a few months away. The 19th Party Congress will reveal who will join top leader Xi Jinping in the ruling Politburo Standing Committee, and in the process provide clues to China’s political future. In this piece, Yanmei outlines different possible scenarios and explains their implications.
Gavekal Dragonomics
January 10, 2017
In 2017, the Communist Party will hold its 19th Congress, an event that will set the political framework for Xi Jinping’s second term as China’s leader, and beyond. The big question for the Congress is how much Xi will be able to change the rules of elite politics to strengthen his own power. This piece offers a guide to those rules of the game.
Gavekal Dragonomics
October 28, 2016
Economic policy in China is now entirely beholden to political demands for stability ahead of next year’s Communist Party Congress. Whether things change after depends on how much “core” leader Xi Jinping further strengthens his power, and how much he cares about reform. In this piece, Arthur assesses the outlook after this week’s Sixth Plenum.
Gavekal Research
August 7, 2017
Two years ago this week, the People’s Bank of China sprang a summer surprise when it rejigged its exchange rate strategy, effectively devaluing the renminbi by -3% in two days, and by a further -3% over the following five months. Since then, China’s currency policy has been through several evolutions.
Gavekal Research
June 5, 2017
Over the past week and a half, the renminbi has appreciated 1.1% against the US dollar in the onshore market, and 1.5% offshore, where the PBOC has also engineered a spike in short-term interest rates. It seems China wants to send a signal about the renminbi, but markets are having trouble decoding what it is.
Gavekal Dragonomics
May 30, 2017
Driven by a reflating economy and tightening financial conditions, Chinese bond yields have now risen back to their levels of late 2014. For foreign investors, the combination of higher yields, less currency risk, and some additional opening of the domestic market could make the second half of 2017 an attractive time to get into renminbi bonds.
Gavekal Dragonomics
August 3, 2017
Chinese outbound tourism is having a rough 2017: growth in international travelers is down to about 6%, from 20%-plus growth in earlier years. So has something fundamental in the Chinese tourism story changed, or is this just a blip? In this piece, Ernan argues this slowdown is largely temporary, caused by events in key destinations in Asia.
Gavekal Dragonomics
July 11, 2017
When you buy a house, you also buy things to go in it—yet the rebound in housing sales over the past 18 months has not done much for sales of major home appliances. As Ernan explains in this piece, Chinese demand for washing machines, refrigerators and televisions has now more or less peaked. The main exception is the humble air conditioner.
Gavekal Dragonomics
June 15, 2017
China’s troubled industrial sector shed 2.3mn jobs in 2016—but these losses were swamped by millions more new jobs created in services. The real issue in the labor market today is not how many jobs are being destroyed, but the quality of the jobs being created. Most new jobs are in small businesses that offer lower wages and less security.
Gavekal Dragonomics
July 27, 2017
The profits of China’s industrial sector handily beat expectations in the first half of 2017, rising 22% YoY. In this piece, Thomas surveys the profit cycle’s path over the next 12 months, which mirrors that for the overall economy: a slowdown in the rest of 2017 and into 2018, but quite a gradual one with little risk of a profit recession.
Gavekal Research
June 21, 2017
After three years of teasing, MSCI has agreed to include Chinese domestically-listed stocks, or A-shares, in its main equity indexes. Yet, hopes that MSCI inclusion will quickly spur huge capital inflows and a sustained domestic bull market, are almost certainly wide of the mark.
Gavekal Dragonomics
May 22, 2017
The recent financial crackdown may give the impression that “China is finally getting serious about corporate deleveraging.” This impression is wrong: while leverage is already declining, this is likely to stop in 2017. Worries about zombie companies have also faded as rising profits and falling rates make it easier to service corporate debt.
Gavekal Dragonomics
August 9, 2017
China’s market for gasoline, diesel and other oil products has gotten increasingly competitive since the government started allowing private-sector refiners to import their own crude oil. But the government has now put additional liberalization on hold, which will halt gains for independent refiners and benefit big state enterprises.
Gavekal Research
August 1, 2017
China’s property market is once again running hotter than expected, pushing prices of iron, steel and coal up by 15%-40% over recent weeks. But the gradual downward trend in property has not changed. And with high prices and government intervention both stimulating more commodity supply, the potential for further price gains is limited.
Gavekal Dragonomics
June 7, 2017
China’s iron ore price is now down by about a third from its peak in February. In this piece, Rosealea reassesses the market in light of this correction, and argues that the price is unlikely to stay substantially below US$60 per ton for long. That’s because domestic miners responding to low prices by cutting output, helping rebalance the market.
Gavekal Dragonomics
July 19, 2017
The flow of cross-border M&A from China is reviving as the crackdown on capital flight eases. But as Yanmei argues, the flow of deals is unlikely to repeat the stunning growth surge in 2016, as the government has now reasserted its control over outward direct investment.
Gavekal Research
July 3, 2017
Last week Washington soured its relationship with China by imposing sanctions on some Chinese companies and individuals that do business with North Korea and announcing a big arms sale package for Taiwan. Rumors also continue to percolate that Trump is preparing for more aggressive trade action. Arthur discusses whether it is time to worry.
Gavekal Dragonomics
May 10, 2017
Ahead of next week’s Belt and Road Forum in Beijing, Tom Miller provides an update on the progress of Xi Jinping’s signature foreign policy. More than three years after its launch, China’s Belt and Road Initiative is starting to deliver useful infrastructure, and is clearly boosting construction volumes and stimulating new investment.
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
March 21, 2017
After forty years of market reforms, state-owned enterprises retain an exceptionally large role in China’s economy. Though their financial performance is deteriorating and their debts are growing, SOEs’ share of the economy is rising rather than falling. In this chartbook, Andrew pulls together the data to show the true state of China’s SOEs.
Gavekal Dragonomics
June 8, 2017
China is attempting to become Asia’s new leader. The high costs of confronting it mean that the US’s regional influence is likely to dwindle. But widespread distrust of China means that many countries will continue to prefer investment from the EU, US and Japan. This issue of China Economic Quarterly investigates China’s role in the Asia-Pacific.
Gavekal Dragonomics
March 15, 2017
China’s growing economy has brought its people longer lives, but also a new set of health problems. Though the government is trying to improve coverage, change is happening slowly. So there is a growing opportunity for private companies to fill the gap. This issue of China Economic Quarterly investigates the nation’s health problems, and solutions.
Gavekal Dragonomics
December 12, 2016
2017 will be a very political year for China. The short-term priority is a smooth economic run-up to the Communist Party Congress, when Xi Jinping will strengthen his grip on power. In the long term, questions are growing as to whether the Party is flexible enough to govern a dynamic society. This issue of CEQ assesses China’s political future.
Gavekal Research
July 18, 2017
China’s onshore financial markets are opening up. Admittedly, neither last month’s inclusion of Chinese A-shares in MSCI’s benchmark indexes, nor this month’s opening of the Bond Connect scheme, will change the world immediately. But together they signal that Beijing is serious about opening its capital markets to foreign investors.
Gavekal Research
July 13, 2017
Recent efforts to open up China's stock and bond markets have granted deeper access for foreign investors. In Tuesday's conference call Thomas Gatley outlined what MSCI's decision to include A-shares in its indexes means for investors, while Chen Long argued that the next great bond bull market may happen in China.
Gavekal Research
May 31, 2017
Louis Gave, Charles Gave, Tom Miller and Arthur Kroeber presented at Gavekal's New York seminar last week.