Gavekal Dragonomics
May 25, 2017
Coal was the most volatile commodity price in China last year, but it has been remarkably stable in 2017. In this piece, Rosealea explains how the government has revived a contract system of regulating coal prices, in the place of campaigns to cut or raise coal output. Coal prices are thus likely to stay at their relatively high levels for longer.
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
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
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
April 24, 2017
China’s free-spending local governments have a new way to get money. Raising equity, not just debt, is how many localities are financing the current wave of infrastructure and industrial projects. In this piece, we explain how a new model of government-led funds began as a replacement for local borrowing, but ending up only adding to liabilities.
Gavekal Dragonomics
March 14, 2017
China’s latest data show the reflation that began in 2016 continued in early 2017: growth is accelerating and the housing market is very strong. Chen Long draws two conclusions from this. First, with construction supported the government will have no problem keeping growth stable in 2017. Second, a further tightening of policy is very likely.
Gavekal Dragonomics
February 3, 2017
After more than a decade of debate, could China finally be ready to start imposing a property tax? In this piece, Rosealea argues that political will and technical preparations point to progress toward a tax in 2017. While some fear the impact on prices, the gradual rollout of a narrowly focused tax should be mostly a non-event for markets.
Gavekal Dragonomics
February 1, 2017
China’s government has been ramping up its focus on urbanization and rural land issues, promoting new policies as breakthroughs that will keep driving growth for decades to come. But for all the rhetoric, the new policies are not fundamentally liberalizing. And the incentives they create could slow rather than accelerate rural-urban migration.
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
Joseph Fewsmith
December 12, 2016
When Xi Jinping took power four years ago, the Communist Party was plagued by opposition and factionalism, a loss of control over provincial governments, and an erosion of legitimacy. To solve these problems Xi has centralized power in a single leader—himself. Such a retrograde approach bodes ill for China’s long-run economic and political future.
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 Dragonomics
May 9, 2017
The renminbi has had a surprisingly good year, thanks in large part to the weakness of the US dollar. In this piece, Chen Long argues that dollar weakness will likely continue—and with it a benign environment for capital flows and China’s currency policy. Even a rise in the renminbi is a prospect that can no longer be dismissed out of hand.
Gavekal Dragonomics
February 15, 2017
China’s balance of payments show that 2016 was another big year for capital outflows, which accelerated in the second half. But Chen Long argues this pickup will not continue into 2017. Current outflows are not large enough to stop the central bank from pursuing its exchange-rate policy, which can be sustained for another couple of years.
Gavekal Dragonomics
February 13, 2017
Is Donald Trump backing down from his threat to get tough on China trade? It might seem so: after three weeks of rapid policy moves, his promised anti-China trade action is still missing. But it will not stay missing for long. Some US move against China trade looks inevitable in coming months, though the costs will be high and the benefits unclear.
Gavekal Dragonomics
April 13, 2017
China’s outbound tourism is clearly a big deal, but statisticians are having problems figuring out just how big: a huge upward revision has just been followed by a huge downward one. In this piece, Ernan cross-checks the numbers, and finds that Chinese foreign travel is growing rapidly, despite confusing revisions and falling travel to Hong Kong.
Gavekal Dragonomics
April 6, 2017
It’s been a rough few years for Chinese consumer-goods firms: sales growth for items from soft drinks to instant noodles to sportswear has slowed dramatically since the 2000s, and price wars have slashed margins. In this piece, Thomas argues that the worst is now over: our models point to a more gradual and manageable slowdown in coming years.
Gavekal Dragonomics
March 8, 2017
Premier Li Keqiang says pressure on employment is growing, so he has raised the government’s target for urban job creation in 2017. Ernan however disagrees with the premier: the pressure on China’s job market will actually ease somewhat this year, as the cyclical recovery in the economy means that companies have less need to cut jobs.
Gavekal Research
March 24, 2017
Last year, MSCI raised three objections which prohibited the inclusion of China’s onshore A-share markets in its benchmark indexes. In a document published yesterday MSCI suggested two of those obstacles can now be overcome. Chances are high that the third objection can also be dealt with, allowing the inclusion of A-shares as early as this year.
Gavekal Dragonomics
March 13, 2017
China’s listed companies won’t report their final Q4 earnings for another month, but preliminary numbers show it was their best quarter since 2010: profits for the median company jumped 28% in Q4 after a 25% rise in Q3. Strong earnings mean that fundamentals are supporting the slow but steady rally in A-shares that is now about nine months old.
Gavekal Dragonomics
February 28, 2017
The state of initial public offerings is one of the Chinese stock market’s longest running embarrassments: regulators have been holding up IPO approvals for hundreds of firms for years now. But they are now finally picking up the pace, making it easier for younger, fast-growing firms to list—though full deregulation of IPOs is not on the agenda.
Gavekal Dragonomics
May 17, 2017
China’s “supply-side reform” measures have helped drive a recovery in prices of industrial commodities. In agricultural commodities, the name is the same, but the results are very different: the price of corn fell 44% from its peak after the government removed price supports. Now that prices have adjusted, quantities will follow: imports will fall.
Gavekal Dragonomics
March 28, 2017
Iron ore prices are still high, but for how much longer? Returning from a field trip, Rosealea is now more convinced prices will fall. A government campaign to close low-end steel producers is aggravating cyclical swings rather than changing the structure of the industry. As supply is now rising to meet demand, prices will come under pressure.
Gavekal Dragonomics
March 3, 2017
Is China’s continued rally in iron ore prices the result of benign structural change in the steel sector, or frenzied financial speculation? Rosealea and Arthur review the competing explanations, and find both have some merit. So while a lot has to go right to avoid an ore price crash, this correction could still take a while to materialize.
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
March 23, 2017
Since South Korea decided to host a US missile-defense system, China has restricted tourism and closed local operations of Korean firms. The dispute will mean some economic pain for Korea, but no lasting damage. But China is ever more willing to use such “sanctions with Chinese characteristics” to disrupt trade with countries that displease it.
Gavekal Dragonomics
January 25, 2017
Xi Jinping’s passionate defense of the globalized economy at Davos last week was, in reality, a sign that Beijing knows the tide is turning against it. The surge of Chinese outward direct investment in recent years has already sparked a backlash, and the political momentum for more restrictions on Chinese investment now looks unstoppable.
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
December 6, 2016
If China’s sputtering state enterprise reforms are going to be successful anywhere, it should be in Shandong, with its solid economy and reform-minded governor. But a closer look at Yankuang Group, the province’s poster child for SOE reform, shows that local SOEs are just becoming even larger, more complicated and less transparent conglomerates.
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 Dragonomics
September 15, 2016
China’s economy may be slowing, but its ability to cause technological anxiety has never been greater. Many are worried China could succeed in its ambition of becoming a global technology hub, at the expense of existing leaders. This issue of the CEQ focuses on how China is moving up the technology ladder, and the risk this triggers a backlash.
Gavekal Research
May 18, 2017
Tom Miller was recently interviewed by ABC News Australia and the BBC about China's Belt and Road initiative.
Gavekal Research
April 14, 2017
In the aftermath of the first summit meeting between Xi Jinping and Donald Trump, the critical issues remain the same: a prickly trade and investment relationship which American businesses feel is increasingly skewed against them, and rising danger of confrontation over North Korea.
Gavekal Research
March 28, 2017
In Gavekal’s Asia focused seminar in Hong Kong last week Arthur Kroeber, Udith Sikand and Tom Holland presented their outlooks for the rest of the year.