Gavekal Dragonomics

Like the dog that failed to bark in the night, the most interesting development in China’s economy this year is what hasn’t happened: a substantial stimulus. What’s the reason for the government’s cautious approach? Andrew considers four possibilities and lays out the implications for macro policy going forward.

The persistent strength in the US dollar has surprised a lot of market participants, not least the People’s Bank of China. Since the second half of 2023, the PBoC has made clear it wants to prevent the renminbi from depreciating too much against the US currency. But it keeps waiting for a weaker dollar to accomplish that goal—and the dollar keeps failing to cooperate.

China's economic data for January and February were mixed, but overall the economic growth momentum decelerated slightly. Wei and the Dragonomics team argue that recent policy measures have shown no sign of gaining traction in the data, and increase the uncertainty around coming policy support.

Today, pressure from China's excess capacity is on high technology, most prominently semiconductors. China has been investing in new semiconductor fabs to increase self-sufficiency and relieve chip shortages. All that new capacity is now starting to come to market, at a time when the world could have difficulty absorbing the extra supply.

Years before the US government expanded export controls to target technology champions like Huawei, it used them to restrain China’s supercomputer advances. Tilly argues that the sector provides lessons about what the controls can and cannot accomplish—in particular, that getting around sanctions is easier on a small scale than a large scale.

The annual Central Economic Work Conference, which concluded in Beijing on Tuesday, presented another opportunity to reset the policy direction. Did China’s leadership take this opportunity to deliver a clear signal that they will do whatever it takes to stabilize the economy? Spoiler alert: they did not.

China’s property market is off to an awful start to 2024. Rosealea and Xiaoxi argue that the most likely path is for sales to continue to bounce along at the current low levels while construction improves modestly, if only due to social housing initiatives. But the poor start to the year means the risks are now tilted firmly to the downside.

China’s policymakers have called for “ensuring delivery of buildings” and stepped up policy support to finish delayed home construction projects. But Rosealea argues that the current pace of home completions is probably only enough to finish recent presales, not to work through the large backlog of delayed construction projects.

The first week of March saw China’s government present its economic policy targets and fiscal plans for the year ahead. In this video interview, Christopher peers through the official fog to assess the degree of policy support on offer for China’s economy and discusses how this affects the growth outlook.

In this webinar Gavekal’s analysts review the themes driving growth across the world’s major economic regions, and discuss how macro developments are likely to drive financial markets over the remainder of 2024.

With inflation reaccelerating in the US, energy prices rising and escalating conflict in the Middle East, 2024 is beginning to feel uncomfortably reminiscent of the early 1970s. In this webinar, Gavekal’s founding partners examine how investors have mispriced the risk of permanently higher inflation, and discuss how to structure portfolios for a less forgiving macro environment in which bonds no longer serve to hedge exposure to equities.

This webinar examines the probable extent of anti-China protectionism around the world, assesses the consequences for China's manufacturing industries and growth outlook, and gauges the risk to other economies of Chinese retaliation.