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E.g., 25-04-2017
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    Gavekal Dragonomics

    Behind The Jobs Target

    China’s leaders may have missed their GDP growth targets for the last couple of years, but they are still beating their targets for job growth. Yet the statistic used for this target gives a very misleading picture of the labor market. It’s better to instead watch surveys of households and employers, which capture the real, deteriorating trend.

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    Gavekal Research

    The Renminbi Falls; No One Cares

    This week the renminbi slipped to its lowest level against the dollar since 2010. Yet this decline had little impact on global markets, a sharp contrast to the convulsions caused by previous drops. In the absence of a radical shift in currency policy or accelerating capital flight, China’s gradual depreciation is a non-story for most investors.

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    Gavekal Dragonomics

    The Caution Of Chinese Corporations

    China’s rising corporate debt is now driven more by banks pumping out credit than by reckless firm behavior. Chinese companies are increasingly risk-averse: happy to borrow from banks, but preferring to sit on the cash not spend it. This behavior is a big reason why monetary policy is becoming less effective at stimulating demand.

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    Gavekal Dragonomics

    The Natural Gas Glut

    China’s natural gas demand is likely to rise by 7-9% annually for the rest of the decade, half the 15% pace of 2003-14. That is still a pretty decent pace of growth—but well below what the government planned for. Having signed contracts and built pipelines on the basis of ambitious forecasts, China’s challenge is now dealing with a glut of gas.

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    Gavekal Dragonomics

    A Boring Infrastructure Bank

    The creation of the Asian Infrastructure Investment Bank promised to reshape the world’s economic architecture, and greatly worried the US. Yet now that the AIIB is a reality, it is not challenging the existing Bretton Woods institutions. It is on course to resemble them—and cooperate with them. In fact, the AIIB has become just a bit boring.

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    Gavekal Dragonomics

    Macro Update: The Limits Of Stimulus

    In our latest quarterly overview of China’s economy, Chen Long assesses the outlook after the stimulus of early 2016 and the Brexit vote. The property and credit cycles are turning as policymakers grow cautious, though private investment has benefited little. Still, deflation is easing, capital outflows are moderating and exports are improving.

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    Gavekal Dragonomics

    Household Savings: A Permanently High Plateau?

    China’s famously high household savings rate is still stuck in the stratosphere: it has hovered around 37-38% of income since 2008. So have the drivers of savings not changed at all in recent years? Far from it. High savings were mainly caused by China’s massive housing boom, and now that the boom is over, savings rates will be grinding lower.

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    Gavekal Research

    What Does China’s Propaganda Ministry Do All Day?

    When asked to speak about China at big investment conferences, I often kick-off by asking the audience “who here trusts Chinese data?” When no one raises their hand, my follow-up is generally “OK: 0 out of 250! That’s more than usual”. Beyond getting a cheap laugh, the point is to highlight how most foreign investors are suspicious, and often downright fearful, of China. Such distrust may stem from China being one of the few major economies to...

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    Gavekal Dragonomics

    CEQ: The State Sector’s New Clothes

    In this issue of the CEQ, we take a close look at state-owned enterprises, which lie at the heart of Xi Jinping's strategy for restoring China to greatness. The goal of Xi’s recent policies is clear: to strengthen SOEs and make them more effective instruments of macro management at home, and more powerful agents of national interests abroad.

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    Gavekal Dragonomics

    Villains Or Victims? The Role Of SOEs In China’s Economy

    State-owned enterprises are often blamed for China’s excess capacity, but private firms are the bigger culprits. The real problem is that the government now forces SOEs to act as economic stabilizers, at high cost. This makes them an ever-growing liability to the state.

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    Gavekal Dragonomics

    State Enterprise Reform: Missing In Action

    In 2013, the Third Plenum Decision promised bold reform of the SOEs, to diversify their shareholding and improve their financial performance. Nearly three years on, little remains of that agenda beyond a conflicting jumble of vague directives.

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    Gavekal Dragonomics

    Return Of The Line Ministries

    In the 1990s, Zhu Rongji broke up state-owned conglomerates, to spur efficiency through competition. Now Xi Jinping’s SOE reform aims to bring those conglomerates back to life. The effort will be spearheaded by Xiao Yaqing, whose ambition to turn the state aluminum company into a global metals giant foundered, but who is now the bureaucrat in charge of all central SOEs.

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    Gavekal Dragonomics

    Stability Above All

    The government seeks to keep both GDP growth and the exchange rate as steady as possible ahead of the Communist Party Congress scheduled for the fall of 2017. It may succeed, but probably at the cost of further delaying its structural reform program.

    0
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    Gavekal Dragonomics

    The Future Of China’s Oil Demand

    China’s demand for oil—unlike its need for other commodities—will continue to grow, thanks mainly to greater use of automobiles. Imports, though, will be more volatile, and determined largely by how fast the country tries to fill its strategic reserves, and how quickly refiners adapt to changing consumption patterns.

    0
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    Gavekal Dragonomics

    The Long March To Europe

    China’s investment in Europe is surging, as Chinese firms step up their M&A efforts and put more money into infrastructure ventures. European authorities must do a more active job of weighing the economic benefits of this investment against the political risks.

    0
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    Gavekal Dragonomics

    Making Sense Of The Economic Policy Mess

    Xi Jinping’s economic policy seems like a mass of confusion. This is only because he has been coy about stating his true aim: to make the state sector as strong as possible.

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    Gavekal Research

    A-Shares: The Food Is Terrible, And Such Small Portions

    The decision by MSCI not to include China’s onshore A-share market in its Emerging Markets index should have come as no surprise. Despite real progress, there are still regulatory roadblocks to inclusion that have yet to be dismantled. In any case, the resulting fund flows into the A-share market would be smaller than many observers expect.

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    Gavekal Research

    Never Do On Monday What You Wish You’d Done On Friday

    The first rule of bear markets is never to do on Monday what you wish you had done on Friday. During bear markets, the constant stream of negative stories from the media leads to a build-up of anxiety among investors, anxiety that pours out first thing on Monday morning on trading floors everywhere.

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    Gavekal Dragonomics

    Capex Lacks All Conviction

    China’s latest debt-driven stimulus has stabilized growth, but the benefits have been narrow: outside infrastructure and real estate, private investment has not picked up at all. Total investment growth will be higher in 2016, but a renewed slowdown of capital spending in 2017 is very likely, as companies adjust to the end of the housing boom.

    0
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    Gavekal Research

    South China Sea Risks

    In the next few weeks the Permanent Court of Arbitration in The Hague will likely rule in favor of the Philippines in its dispute with China over territorial claims in the South China Sea. Beijing’s reaction will show to what extent China is prepared to defy international law to defend what it claims are “core interests”.

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