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E.g., 17-12-2018
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    Gavekal Research

    China's Data Will Get Worse Before It Gets Better

    The latest round of data releases painted a mixed picture of Chinese economic activity in October. Most notably, credit growth was weak. Given that without an acceleration in credit growth there will be no broad pick-up in overall economic growth, this indicates that Beijing will loosen policy further over the coming months. But how far and how fast?

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    Gavekal Research

    No Renminbi Line In The Sand

    The renminbi has jumped over the last two days after the central bank signaled it would squeeze offshore liquidity. However, argue Long and Tom, it would be wrong to interpret this as a sign the PBOC will defend a line in the sand at 7. Embracing flexibility makes more sense as an exchange rate policy. The PBOC is just aiming to smooth volatility.

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    Gavekal Research

    Beijing Seminar — October 2018

    At Gavekal’s seminar in Beijing last week, Louis-Vincent Gave, Udith Sikand and Chen Long presented their latest views on the turn in global markets, the prospects for emerging markets in the quarters ahead, and on China's policy priorities as it faces down the US in a prolonged rivalry.

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    Gavekal Dragonomics

    On The Front Lines Of The Trade War

    There now seems to be little chance that the trade frictions between the US and China will be resolved anytime soon. So how are Chinese exporters dealing with the prospect of a steep rise in tariffs come January? Our analysts report from the Canton Fair on how exporters are coping now, and their strategies for the future.

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    Gavekal Research

    Beijing Is Aiming At Stabilization, Not Stimulus

    Chinese authorities are stepping up the pace of monetary easing, and are prepared to tolerate greater exchange rate volatility as a consequence. But, as Chen Long explains in this piece, Beijing’s easing measures are aimed at stabilizing the domestic economy, not stimulating activity in response to a trade-war-induced slump.

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    Gavekal Dragonomics

    Macro Update: Staying Calm In The Trade War

    Where does China stand as the trade conflict with the US mounts? While stock markets have tanked, the economy has not. In this concise chartbook, Chen Long presents the major macro and market indicators to explain why growth is holding up and why the government is not yet unleashing a major stimulus.

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    Gavekal Dragonomics

    A New Tool For Infrastructure Funding

    China’s government is worried about slowing growth, but also does not want to give up on financial de-risking. To balance these priorities, it has devised a new tool: “special-purpose” bonds issued by local governments. In this piece, Chen Long explains how this new way of funding infrastructure will work, and how much stimulus it can deliver.

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    Gavekal Dragonomics

    Choosing The Trajectory For Household Debt

    Regulators and investors are getting more concerned about China’s household debt after its sharp rise in recent years. In this piece, Chen Long breaks down the rise in leverage and explores the policy options. It would be plausible and prudent for China to now slow the buildup of household debt—but this may not mesh with the easing of policy.

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    Gavekal Dragonomics

    Show Me The Stimulus

    China's data releases for July showed that the easing measures of the last few months have yet to have an impact on the real economy, with industrial value-added, fixed-asset investment and retail sales all slowing. Further monetary easing measures will follow. But as Long argues, they are unlikely to lead to a major increase in credit growth. Instead any stimulus efforts are likely to be financed by an increase in local government bond...

    3
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    Gavekal Research

    What Will Halt The Renminbi’s Fall?

    The momentum for a weaker renminbi is considerable, with the US ratcheting up its trade war with China and the Chinese government moving to easier fiscal and monetary policies. But Chen Long argues that the renminbi’s downside from current levels may prove limited even though the central bank is unlikely to intervene as much as it did in 2015-16.

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    Gavekal Dragonomics

    Stemming The Tide Of Bond Defaults

    As China’s government shifts economic policy more explicitly into easing mode, will it relieve the growing strains in the corporate bond market? In this piece, Chen Long diagnoses the underlying causes of a recent wave of defaults that have spooked investors, and explains how the government is changing policy to ease that financial stress.

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    Gavekal Dragonomics

    Time To Get Fiscal?

    China’s latest data reinforce an economic trajectory that is getting worrisome for policymakers, with weaker domestic activity, an escalating trade conflict and a greater-than-expected slowdown in credit growth. Further easing of monetary policy is definitely in the cards, but there is now rising pressure on Beijing to step up fiscal spending.

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    Gavekal Dragonomics

    Audio & Transcript — Gavekal Research Call July 2018

    In this call Arthur Kroeber outlined his view on why President Donald Trump’s trade war is not a bluff, and is likely to escalate ahead of the US midterm elections in November; Andrew Batson explained the macro-level effects caused by all this uncertainty; and Chen Long discussed the market impacts in China and the country’s likely response.

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    Gavekal Dragonomics

    The Renminbi Catches Up With Reality

    After its biggest downward move since 2015, where is the renminbi headed next? Since mid-June it has fallen by over -4% against the US dollar to CNY6.63, and the trade-weighted CFETS index has also declined by -3% from its June peak. This has led to some commentary that China is pushing down its currency to prepare for a trade war with the US. In fact the downward move was overdue, and was largely a delayed reaction to foreign exchange market...

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    Gavekal Dragonomics

    Macro Update: More Stress, More Easing

    In this concise chartbook, Chen Long explains where the Chinese economy stands today. The business cycle has been surprisingly strong but is likely to soften more in the second half. Trade conflict with the US is raising uncertainty just as domestic credit stress increases. Policy is adjusting, but to smooth the growth trajectory not reverse it.

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    Gavekal Dragonomics

    Easing Won’t Help Chinese Equities

    When the White House rattled global markets earlier this week with its threat markedly to escalate the international trade war, mainland Chinese stock markets were hit the worst. That is not surprising, considering that the US administration’s threats were targeted specifically at imports from China. However, the fall in Chinese markets was so severe, and the subsequent recovery so anemic, in part because investors’ heightened fears over trade...

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    Gavekal Dragonomics

    Parsing The Slowdown In Credit Growth

    China’s credit growth slowed to a new low in May, but the deceleration in real economic activity remains a moderate one—although sharp contrasts are now appearing among different indicators. In this piece, Chen Long explains why credit growth is likely to continue to slow, and how that will affect different parts of the economy.

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    Gavekal Dragonomics

    Behind The Resilient Renminbi

    The US dollar is rising, so are US interest rates, and China’s current account balance is deteriorating. So the renminbi should be weakening, but it is not. In this piece, Chen Long argues that a recent pickup in capital flows is the cause of this strength, but suspects the central bank will not want to see much more sustained appreciation.

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    Gavekal Dragonomics

    Bond Yields Have Further To Fall

    After a sharp decline in March and April, Chinese onshore bond yields have bounced back over the past three weeks. But based on the latest economic data and policy signals, Chen Long thinks that bond yields have further to fall. Growth is continuing to slow, and the central bank seems comfortable with a slightly more accommodative stance.

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    Gavekal Dragonomics

    Punishing People, Not Institutions

    The strategy behind China’s financial overhaul is becoming clear. It is helping banks by allowing an extended transition to a new set of rules. But prosecutions of executives are also ramping up. This is the opposite of what some Western countries did after the 2008 crisis: people, not institutions, are paying the price for financial risk-taking.

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