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    Gavekal Dragonomics

    Local Governments Will Lead On Property

    Even as China’s property market has experienced an unprecedented decline, central government policymakers have kept a tight leash on official support. However, given growing signs of a lasting disruption to the sector, Rosealea believes that Beijing will tolerate more ambitious municipal efforts to keep local markets afloat.

    0
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    Gavekal Dragonomics

    The Worst Is Yet To Come For Steel

    Steelmakers have continued production despite a precipitous drop in demand, resulting in a short-term inventory glut. As Rosealea explains, this will lead to continued downward pressure on steel prices, at least until the construction sector recovers from the coronavirus crisis and drives demand back up to meet supply.

    0
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    Gavekal Dragonomics

    The Lingering Impact On Property

    While the 2003 SARS outbreak had only a transitory impact on China’s housing market, the 2020 coronavirus episode is proving to be much more serious. In this piece, Rosealea argues that the big hit to housing sales will leave developers short of cash and limit their ability to keep projects going. This points to a lingering drag on construction.

    0
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    Gavekal Dragonomics

    The Mortgage Rate Reset

    China’s central bank is moving forward with its interest-rate reforms, ordering mortgages to be reset based on the new loan prime rate. Rosealea explains that this shift will make monetary policy more transparent and effective by re-linking mortgage rates to official policy rates, but it does not herald a cycle of major cuts in mortgage rates.

    0
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    Gavekal Dragonomics

    The Back Door Is Still Closed

    A slew of new government policies has boosted market expectations for China’s infrastructure spending in 2020. But Rosealea counsels caution: while new measures have opened the “front door” of approved funding a bit wider, more important is that the “back door” of shadow financing remains firmly closed. A big rebound in public works is unlikely.

    0
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    Gavekal Dragonomics

    The Crackdown On Developer Financing

    China’s financial regulators are squeezing funding for property developers in order to discourage land speculation and cool down property prices. In this piece, Rosealea argues the crackdown has been fairly successful, and does not pose a big risk to construction. Slightly easier demand-side policies will help offset tough supply-side restrictions.

    0
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    Gavekal Dragonomics

    Housing & Construction Review 2019

    China’s property market has held up surprisingly well in 2019, but will that strength last? In her annual chartbook, Rosealea examines key market trends and explains the outlook for 2020. Flexible policy can probably continue to avoid a deep decline in housing sales, but construction activity and materials demand are almost certain to slow.

    0
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    Gavekal Dragonomics

    This Old House

    China’s government has launched a new program to renovate older residential compounds, which some are touting as a massive new investment stimulus. As Rosealea explains in this piece, such hopes are misplaced. But the new spending will help cushion the impact of the cutbacks of the subsidies delivered through the slum redevelopment program.

    0
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    Gavekal Dragonomics

    The Risks To Steel Prices

    China’s government is once again going after pollution from the steel industry, raising the risk of more policy-induced spikes in steel prices. While forced shutdowns to ensure blue skies are on the way, Rosealea argues that the bigger risk to steel prices is on the downside, due to weakening construction activity and cautious housing policy.

    0
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    Gavekal Dragonomics

    Housing Policy Turns Cautious

    Housing policy in China has taken a cautious turn, with policymakers more concerned about potential overheating in prices than worried about a downturn in sales and construction. In this piece, Rosealea explains how this shift is playing out through cuts in housing subsidies and changes to local policies, and evaluates the risks to the market.

    0
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    Gavekal Dragonomics

    The Property Cycle Perks Up

    China’s property market data has been surprising on the upside. Thanks to easier credit and looser administrative restrictions, sales volumes picked up in March and prices rose. In this paper, Rosealea examines whether the upturn can last, and assesses what it means for land sales, construction activity, materials prices and the broader economy.

    0
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    Gavekal Dragonomics

    Video: Chinese Property Is Slowing, Not Collapsing

    Home sales in China fell by 3.6% in the first two months of 2019. This, however, was better than expected considering that this upcycle is now four years old. Lower mortgage rates and supportive policies by local governments should prop up demand, and Rosealea expects overall housing sales to decline a modest 2% for the year.

    0
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    Gavekal Dragonomics

    Springtime For Steel

    It’s looking like a good spring for China’s steel industry. In this piece, Rosealea reports on her findings from a recent visit to the steelmaking capital of Tangshan. Steel and iron ore prices are being supported by a combination of stable demand from property, recovering demand from infrastructure and supply constraints from scrap shortages.

    0
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    Gavekal Dragonomics

    The Sunset Of Housing Subsidies

    China’s local governments are cutting back their slum redevelopment plans, which points to lower government subsidies for housing in 2019. As a result, Rosealea argues, housing sales are likely to have a deeper decline this year, although Beijing will manage the phase-out of subsidies with a careful eye on how it affects the market.

    7
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    Gavekal Dragonomics

    The Long Plateau In Housing Demand

    While many forecasters had expected China’s steel demand to enter long-term decline as housing construction peaks, in fact it has stayed surprisingly strong. In this piece, Rosealea revisits her housing model, and finds it is consistent with recent trends. Construction should peak in 2020-22, so steel demand can stay elevated for a few more years.

    0
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    Gavekal Dragonomics

    It's Not All Bad News In Property

    China’s property market keeps delivering bad news: declines in housing sales, land sales and prices have deepened in recent months. But Rosealea sees some positive signs in easing local government policies, lower bank funding costs, and strong momentum in construction. In this piece, she explains why she is not joining the property-market bears.

    0
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    Gavekal Dragonomics

    Steel Prices Have Overshot

    Chinese steel prices suffered their biggest decline in two years in November, falling about 20% over the course of the month. That correction was driven by a combination of a big increase in supply along with worries about future demand. In this piece, Rosealea argues that both problems will be short-lived, and that steel prices can rebound.

    0
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    Gavekal Dragonomics

    Housing & Construction Review 2018

    China’s property market has had a record-breaking run, but where is it headed next? In this concise chartbook, Rosealea delivers her annual overview of the key drivers of housing sales and construction activity and explains the outlook for 2019. An overdue correction in sales is coming, but construction should hold up relatively well.

    0
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    Gavekal Dragonomics

    The Many Misjudgments Of Supply-Side Reform

    Supply-side reform, Xi Jinping’s signature policy of cutting excess capacity in steel, coal and other industries, is widely considered a success. Yet Rosealea’s extensive review finds that this campaign was marred by repeated misjudgments that caused undesired spikes in prices. The justifications for continuing the policy are now wearing thin.

    0
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    Gavekal Dragonomics

    The Policy Constraint From Property

    The hot property market is one of the major constraints on Chinese policymakers’ freedom to stimulate: surging prices and construction do not need more juice. In this piece, Rosealea explains why more decisive stimulus is very unlikely before the property market weakens significantly, and even then will not be as large as in previous cycles.

    1
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    Gavekal Dragonomics

    The Backlash Against The War On Air Pollution

    Steel prices are high thanks to a tough government plan to reduce smog by shutting down metals production—but the rise in prices has recently started to reverse as uncertainty over these policies increases. Rosealea reports on the steel industry’s new pushback against strict output curbs, and why these controls are likely to become more flexible.

    3
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    Gavekal Dragonomics

    The Property Slowdown That Wasn't

    While China’s government is talking tough about containing its frothy property market, the market does not appear to be listening. Housing sales are still growing, price rises are accelerating and construction activity is robust. In this piece, Rosealea explains why property has outperformed, and updates her outlook for the rest of 2018.

    0
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    Gavekal Dragonomics

    Housing Inventories Hit Bottom

    The long decline in China’s housing inventories—the key factor driving the recovery in construction—now seems to have ended. After falling in 2015, 2016 and 2017, housing inventories are now on pace to end 2018 slightly higher. In this piece, Rosealea explains why this change will not spell the end of the construction cycle just yet.

    0
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    Gavekal Dragonomics

    The Biggest Winners In Real Estate

    China’s real-estate developers are getting hammered in stock and credit markets. But the largest of these firms are well-placed to ride out current strains, and are the main beneficiaries of accelerating consolidation and government policy. As the Chinese property market matures, the winners are likely to be a small group of the largest companies.

    0
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    Gavekal Dragonomics

    A Rethinking Of Housing Subsidies

    China's government, worried about continued rapid growth in housing prices, is now reconsidering a major program for subsidizing housing sales. As Rosealea explains, this policy change shows the government is still more focused on curbing frothy housing prices than on boosting growth, and will weigh on housing sales in the rest of 2018.

    0
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    Gavekal Dragonomics

    Property Tightening Is Back

    Chinese government policy for the property market is turning tighter, a shift that will weigh on housing sales and construction activity in the rest of 2018. But Rosealea cautions against overreacting, arguing that the downcycle in property is still likely to be a shallow one, and that policy will loosen again once market conditions weaken.

    2
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    Gavekal Research

    Hong Kong Seminar — April 2018

    At Gavekal’s seminar in Hong Kong this week, Arthur Kroeber, Rosealea Yao and Nick Andrews presented their latest views on the brewing trade war between the US and China, Chinese growth and the property market outlook, and how to capture European growth.

    0
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    Gavekal Dragonomics

    How Steel Survived The Battle For Blue Skies

    It’s been a wild winter for China’s steel industry, with huge swings in output and prices. The main culprit is the aggressive official campaign to reduce air pollution—and the industry’s creative responses to it. Their back-and-forth has not hurt underlying growth much, but the resulting volatility in steel prices is not going away.

    1
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    Gavekal Dragonomics

    The Pain Of Power Producers

    The rebound in commodity prices since 2016 has been a boon for much of China’s industrial sector—but coal-burning power plants have been big losers. Coal prices cannot go much higher without causing serious financial distress. This means that policy should now be shifting to favor power producers, by ensuring coal prices do not climb further.

    1
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    Gavekal Dragonomics

    Cold Weather, Hot Data

    China’s first data release of 2018 delivered a couple of surprises, with a big jump in industrial value-added and a pickup in real-estate investment. But neither amounts to a convincing signal that the economy is actually re-accelerating. The most likely outcome is still a moderate growth slowdown driven by a shallow downcycle in property.

    2
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    Gavekal Dragonomics

    The Property Tax Is Back

    A property tax is back on the Chinese government’s agenda: after being postponed in 2017, the long-discussed tax was brought up again at this week’s legislative session. The draft law could come in 2018, with actual taxes being levied by late 2019 at the earliest. But Rosealea expects this to be largely a non-event for the property market.

    0
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    Gavekal Dragonomics

    Is Construction Preparing An Upside Surprise?

    Since markets reopened after the Chinese New Year holiday, the prices of commodities tied to China’s construction cycle have been picking up. This optimism could be justified: construction fundamentals are solid and policy interventions are mostly positive. In this piece, Rosealea explains the upside risks for construction activity in early 2018.

    0
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    Gavekal Dragonomics

    Local Infrastructure Feels The Chill

    China’s financial crackdown is now extending to the funding tricks that local governments use to pay for infrastructure projects, which have long been tolerated in the name of economic growth. This report explains why this crackdown will put more of a chill on infrastructure spending—but also why public-works investment is unlikely to collapse.

    0
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    Gavekal Dragonomics

    Fewer Surprises From Supply-Side Reform

    China’s “supply-side reform” in coal, steel, and other products been a major swing factor for markets over the past two years. And Chinese officials started off 2018 by doubling down on their rhetoric about supply-side reform. But as Rosealea explains, there are good reasons to think the upside risk to commodities prices will be low this year.

    0
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    Gavekal Dragonomics

    After The Bounce In Coal Demand

    After three straight years of decline, China’s consumption of coal rose 1% in 2017, and prices are rallying. But in this piece, Rosealea argues that this bounce in demand is unlikely to persist. With the property market cooling and official efforts to switch away from coal continuing, coal use should resume its decline in 2018.

    0
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    Gavekal Dragonomics

    The Rental Housing Solution

    China’s government has a new priority for the housing market: boost the quantity and quality of rental housing. As more middle-class Chinese are priced out of top-tier cities, promoting rentals is a new attempt to address housing affordability. In this piece, Rosealea explains the latest policy push and how it will affect property developers.

    0
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    Gavekal Dragonomics

    A Mixed Report From Steel Country

    This winter's anti-pollution campaign in north China is for real, but will have a mixed impact on the steel industry. The campaign also involves a suspension of many construction projects, which will reduce demand. Rosealea's recent field trip to the steel hub of Tangshan suggests both the supply and demand cuts are beginning to bite.

    0
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    Gavekal Dragonomics

    Housing & Construction Review 2017

    In her annual overview, Rosealea summarizes the outlook for the housing market and construction activity in China. This concise chartbook reviews the drivers of growth in 2017, digs into the key indicators and explains the core scenario for 2018: a modest correction in housing sales and prices, and a gradual slowdown in construction activity.

    0
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    Gavekal Dragonomics

    A Restrained Boom In Land Sales

    Even as China’s housing market has cooled, the market for land has been heating up. Land sales to developers are up 10% so far in 2017, after declining for the past three years, and prices are up 50-100%. In this piece, Rosealea argues that such signs of froth are deceptive: land sales are still historically low and developers quite conservative.

    0
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    Gavekal Dragonomics

    Capacity Cuts Won't Hold Up Metals Prices

    To reduce air pollution, China says it will run northern steel mills at just half their capacity this coming winter. Prices of steel and other metals initially rallied on the news, but now are coming off. In this piece, Rosealea argues that metals prices have seen the top of their range, and explains why capacity cuts won’t push prices higher.

    0
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    Gavekal Dragonomics

    Housing Prices Set To Slowly Cool

    Housing prices have had a wild ride in China this year, but with sales now cooling, prices are also losing steam. In this piece, Rosealea argues that the coming correction in housing prices will be a moderate one—probably about half of the 10% nationwide decline in 2014—as inventories are still low and policies are not particularly tight.

    0
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    Gavekal Dragonomics

    Oil Import Deregulation Put On Hold

    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.

    0
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    Gavekal Research

    Fade The Latest Commodity Rally

    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.

    3
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    Gavekal Dragonomics

    Government Becomes A Home Buyer

    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.

    2
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    Gavekal Dragonomics

    The Central Pillar For Housing Sales

    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.

    0
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    Gavekal Dragonomics

    The Iron Ore Slump Nears Its End

    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.

    1
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    Gavekal Dragonomics

    The Return Of Regulated Coal Prices

    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.

    0
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    Gavekal Dragonomics

    How Long Can The Construction Rebound Last?

    Chinese growth prospects look quite good in 2017, thanks to the recovery in construction, but how long can it last? In this piece, Rosealea unpacks the inventory dynamics behind the rebound. Given the strong start to 2017, it now looks like low inventories can support growth in construction not just in 2017, but also well into 2018.

    0
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    Gavekal Dragonomics

    A Shaky Foundation For Iron Ore

    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.

    2
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    Gavekal Dragonomics

    Picking Apart The Iron Ore Conundrum

    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.

    2
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    Gavekal Dragonomics

    Is It Finally Time For The Property Tax?

    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.

    0
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    Gavekal Dragonomics

    The Half-Hearted Battle Against Air Pollution

    The return of severe smog to northern China since December has frightened families and raised more doubts about the government’s declared “war” on air pollution. So is the government losing the war? Or are they not even fighting it in the first place? In this piece, Rosealea explains the political and economic realities of air pollution in China.

    0
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    Gavekal Dragonomics

    Five Macro Questions For 2017

    For our first China research piece of the new year, we offer a guide to the economic outlook in the form of short answers to some big questions: Will China be as boring as consensus forecast imply? Will the central bank hike interest rates? Will the housing market correct sharply? Will it be a good year for Chinese equities? Will the labor market hold up?

    7
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    Gavekal Dragonomics

    How Not To Control Coal Prices

    The price of coal has been on a wild ride recently—and the volatility is not over yet. China’s government spent much of 2016 trying to push the coal price up, but the ensuing price surge now has them backpedaling and trying to push prices down again. There is a real risk these interventions will cause prices to overshoot on the downside in 2017.

    0
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    Gavekal Dragonomics

    Nearing The End Of The Last Housing Boom?

    In 2016, China had its strongest housing market upturn since the global financial crisis. Driven by policy and debt, this surge is unlikely to continue through next year. Fundamental demand has peaked and the government wants to keep prices in check.

    0
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    Gavekal Dragonomics

    CEQ: Xi Jinping’s China

    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.

    0
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    Gavekal Research

    Making Sense Of The Housing-Commodity Nexus

    Early sales data confirm that China’s property cycle took another step down in November. Yet no one seems to have told the commodity markets: even as property sales have cooled off, prices have heated up, with domestic futures for steel, copper, and coal jumping 20-40% in November. In this piece, Rosealea explains how to read these mixed signals.

    0
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    Gavekal Dragonomics

    A Permanent Surplus Of Power

    China’s excess supply of coal-fired electricity is now more extreme than ever—and is only getting worse. This huge misallocation of resources was caused by policies that tried to restrain demand for power, but ended up encouraging its supply. As a result, electricity rates are falling, but not quickly or substantially enough to fix the problem.

    2
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    Gavekal Research

    The Gavekal Monthly: Deflation Ends; What Next?

    The biggest market move of the past month was a significant rise in bond yields across the US and Europe. Much commentary has suggested that this might be a symptom of a sustained rise in inflationary pressures, as wages and rents start to push up prices in the US, and Chinese producer prices end four long years spent in negative territory. We are skeptical. The recent rise in yields has so far reversed only half of the decline in the first half...

    0
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    Gavekal Dragonomics

    The New Reality Of Housing Prices

    The wild ride of Chinese housing prices is a sign of how the housing market has become more speculative and policy-driven as fundamental demand has peaked. Policies intended to help small cities have only made prices in the largest cities frothier. Rosealea thinks this policy-driven volatility in prices will continue even as the cycle turns down.

    0
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    Gavekal Dragonomics

    Andrew Batson: What Next For Chinese Growth?

    Chinese policymakers are set on maintaining economic stability ahead of a crucial Communist Party meeting next year—but while that means stabilizing growth it also means pushing back against a property bubble. In this video interview, Andrew assesses the tactical trade-offs that must be made in support of the strategy of stability.

    0
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    Gavekal Dragonomics

    Housing & Construction Review 2016

    In the latest edition of our annual overview of housing and construction in China, Rosealea summarizes the short- and long-term outlook for these key economic drivers. This concise chartbook provides 2017 forecasts for major indicators, and covers topics such as changes in housing policy, structural trends in demand, and the state of inventories.

    0
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    Gavekal Dragonomics

    The August Heat Won't Last

    China’s property-and-commodity complex got pretty hot over the summer: in August housing sales picked up, investment recovered a bit, and commodity prices jumped. Does this mean a new growth rally is beginning as the government renews stimulus? No—the housing market is still cooling. But Beijing is also far from a real tightening of policy.

    0
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    Gavekal Dragonomics

    The Other Property Inventory Problem Is Even Bigger

    China’s inventories of unsold housing have been declared a national problem—but officials should spare a moment for the even larger overhang in the non-residential property market. While the irrational exuberance toward commercial and office construction is finally fading, they will be a drag on construction growth for the foreseeable future.

    4
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    Gavekal Dragonomics

    Housing Takes A Breather; More Stress On The Way

    July was a weak month for China’s economy, as investment, industrial production and retail sales all slowed. An important exception was the property market, where sales ticked up and buyer sentiment seems strong. Nonetheless, housing activity will continue to slow over the rest of the year, if at a gentler pace than the plunge in May and June.

    0
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    Gavekal Dragonomics

    Iron Ore’s Battle Of Attrition Is Over

    China’s iron ore imports jumped in early 2016, finally validating global mining companies’ strategy to gain market share. As low prices continue to force domestic mines to close, iron ore imports still have a few quarters of growth ahead. But with import penetration already over 80%, there is not much market share left for global miners to grab.

    0
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    Gavekal Dragonomics

    The Mixed Progress On Excess Capacity

    Domestic coal output has declined sharply this year, but steel production has been flat. This pattern reinforces the point that excess capacity only shuts when forced to by low prices—and steel prices were high because of the stimulus. While both excess capacity sectors will continue to contract, trade tensions are unlikely to vanish quickly.

    0
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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.

    0
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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.

    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 Housing Cycle Is Aging Rapidly

    The latest up-cycle in China’s housing sales has probably reached its peak. Major cities saw a marked step-down in sales growth in May, and absent major new stimulus national data will follow suit. Housing sales are still on pace for full-year growth of over 10%, but will slow to single digits later in 2016, and 2017 will see a deeper correction.

    0
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    Gavekal Dragonomics

    Despite The Bounce, Housing Has Peaked

    The rebound in China’s housing sales early this year raises the obvious question of whether we were too quick to proclaim the peak in housing demand. Housing sales in 2016 are indeed on track to surpass 2013, but this is a stimulus-driven bounce. The long-term trend still points to a 10-20% decline in annual construction volume by 2025.

    0
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    Gavekal Research

    The Gavekal Monthly: Glass Half Full Or Glass Half Empty?

    The past month has seen the US dollar seemingly top out, the oil price settle into a trading range and China’s economic outlook stabilize. Emerging markets in particular have bolted higher despite weak global trade, an oversupplied commodity complex and worries about high levels of leverage. In this edition of The Gavekal Monthly we ask a pressing question for EM investors: is the glass now half full, or half empty?

    0
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    Gavekal Dragonomics

    The Future Of China’s Oil Demand (II)

    Stockpiling has become a key driver of China’s crude oil imports, as Beijing builds up its strategic petroleum reserve and as state-owned oil companies add to their own inventories. But constraints on the capacity to store these stockpiles mean that this boost to oil imports will likely stall within the next two to three years.

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  • Gavekal Dragonomics

    The Future Of China’s Oil Demand (I)

    While China’s demand for coal and other basic commodities has gone into decline, its consumption of crude oil has continued to climb. Rosealea projects the GDP intensity of different oil products to conclude that China’s demand for crude oil is set to continue rising over the next five years, despite the slowdown in many sectors of the economy.

    0
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    Gavekal Dragonomics

    How Long Can This Keep Going On?

    Has China salvaged growth only by inflating a housing bubble? How much tolerance the government has for a surge in housing prices and mortgage debt is a crucial question for judging how long the new construction cycle can last. History suggests the price gains are now strong enough for the government to start cooling things down at the margin.

    0
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    Gavekal Dragonomics

    A Regional Guide To The Property Recovery

    The rebound in real-estate investment is behind China’s growth stabilization, but flies in the face of still-high inventories of unsold housing. The regional pattern is very mixed: some genuine improvement, and a lot of government stimulus. Construction in 2016 will be better than expected, but the lack of destocking will drag on future growth.

    7
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    Gavekal Dragonomics

    CEQ Q1 2016 - Excess Capacity, Zombie Companies, And Debt Deflation

    The story goes that excess capacity and debt-ridden ‘zombie companies’ will drag down China’s economy. But the problems are mainly confined to steel, coal, and other construction-related industries—and are less dire than in the 1990s. A long, slow restructuring is possible, though perhaps not ideal.

    0
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    Gavekal Dragonomics

    CEQ: Avoiding The Japan Trap

    Growth is slowing, debt is rising, and the government is openly talking about "zombie companies" in key industries. This is China today, but there are also echoes of 1990s Japan. This issue of the CEQ examines the similarities and differences, and handicaps China’s chances of dodging a Japanese scenario of low-growth, high-debt stagnation.

    0
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    Gavekal Dragonomics

    Five Trends From The Five-Year Plan

    What to make of China’s five-year plan? The 13th and most recent plan has lost some uniqueness: it is now just one of Xi Jinping’s many long-term plans, strategies and initiatives. So figuring out what is new and important can be even more challenging. To cut through the clutter, we highlight five important trends for next five years.

    5
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    Gavekal Dragonomics

    A Turn Too Soon

    The biggest surprise in China’s latest data was the rally in property: housing sales surged and real estate investment picked up in the first two months of 2016. But this improvement is unlikely to be sustained: the turn in property has come far earlier than fundamentals warrant, and suggests the government does not have a firm grip on the market.

    2
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    Gavekal Dragonomics

    Embracing Housing Debt

    China’s latest wave of supportive policies for the housing market won’t generate a huge bounce, but they do show the government is happy to use easy credit to keep housing sales going. Helping the market digest the oversupply of new housing is clearly a major priority. But the consequences will be rising household leverage and frothy prices.

    0
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    Gavekal Dragonomics

    Say Goodbye To Coal Imports

    China’s coal imports dropped a stunning 30% in 2015—and all signs indicate more declines are coming. Imported coal is taking the brunt of the adjustment in the nation’s energy demand, as the domestic transportation bottlenecks that made imports attractive have eased. We think China will stop being a major net importer of coal in about two years.

    0
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    Gavekal Dragonomics

    The Turning Point For Excess Capacity

    2015 saw historic declines in China’s output of coal and steel—which are far from over. Falling commodity prices have brought the excess-capacity sectors to a turning point, finally forcing them to cut output. More producers will cut in 2016, at a pace similar to or faster than in 2015; the government is talking tough but prefers a gradual process.

    2
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    Gavekal Dragonomics

    Five Macro Questions For 2016

    For our first China research piece of the new year, we offer a guide to the economic outlook in the form of short answers to some big questions: Will China derail the global economy? Will the government step up policy easing? Will housing prices collapse? Will industrial profits recover? Will troubled companies lay off more workers?

    3
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    Gavekal Dragonomics

    The Year Of Peak Everything

    2015 should go down as a turning point in China's economic history: coal demand is having its biggest drop for 15 years, steel for 20, cement for 25. The previous declines in materials use were one-offs that were quickly forgotten in the ensuing boom; this time, they will be longer lasting.

    2
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    Gavekal Dragonomics

    Finding The Missing Coal

    This year statisticians decided China has actually been using about 600mn more tons of coal than previously estimated. The news is a bit awkward for official pledges to cap coal consumption and carbon emissions. But actually these new figures only reinforce our conviction that China is already very close to its peak level of coal demand.

    2
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    Gavekal Dragonomics

    The Housing Recovery Is Fading

    One of the few recent bright spots in China’s economy has been the recovery in housing sales. Unfortunately, a number of indicators show that recovery losing steam: gains in sales and prices will slow in coming months. This turn in the cycle reinforces our view that construction activity will be weak in 2016, and that more rate cuts will come, says Rosealea.

    0
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    Gavekal Research

    The Gavekal Monthly: A Possible Return Of US Inflation

    The Gavekal Monthly outlines our highest conviction ideas and summarizes the key economic, market and thematic views held by the firm’s partners and analysts. This report is an attempt to answer a question that we are often asked, but find it hard to answer: "What does Gavekal think?".

    0
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    Gavekal Dragonomics

    Housing & Construction Review 2015

    Our annual overview of China’s housing and construction markets summarizes the short- and long-term outlook for these crucial economic drivers. In this concise chartbook, Rosealea explains the structural challenge from stagnant demand, the new focus of housing policy, and the role of inventories in shaping the construction cycle.

    0
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    Gavekal Dragonomics

    When Will Construction Rebound?

    Given the huge role that real estate plays in China’s economy, we can’t expect growth to rebound much until construction recovers. In this piece we propose scenarios for how this could happen, focusing on the inventory cycle. We conclude that construction starts will decline again in 2016, with a cyclical rebound not arriving until 2017 or 2018.

    0
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    Gavekal Dragonomics

    Spreading The Urban Wealth

    President Xi Jinping is promoting a plan for integrating Beijing and Tianjin with poorer Hebei province, ev even declaring it a national strategy to drive future growth. If successful, the plan will spread some of the resources in central Beijing more evenly around the region. This in turn will push up property prices in suburbs and smaller cities.

    0
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    Gavekal Dragonomics

    No New Coal: Power Sector Crosses Green Energy Threshold

    The combination of structural shifts under way in the economy and new regulations mean that future growth in China’s electricity demand growth can be met entirely from clean energy sources. The implication is that over the coming years, China will no longer need to build new coal-fired power plants.

    0
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    Gavekal Dragonomics

    What To Worry About, And What Not To In China

    The unexpected devaluation of the renminbi earlier this month focused international attention on the continuing slowdown in China and triggered increased worries about its problems. In this piece, we detail four areas where fears about economic fragility have been overstated, and four areas where investor concerns are justified.

    3
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    Gavekal Dragonomics

    The Infrastructure Conundrum

    Officials are once again promising to boost public works to support growth. But infrastructure spending is unlikely to accelerate sharply from its already rapid pace. With little pressure on existing infrastructure, it is harder to justify new rail and power projects. And projects that do get built will be at more risk of making poor returns.

    1
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    Gavekal Dragonomics

    Housing: From Suppression To Support

    After two rounds of relaxing housing policies, China’s authorities have almost run out of ammunition within the existing policy framework. As a result, the authorities are eyeing new tools to support demand: a greatly expanded market in mortgage-backed securities and a housing policy bank to help finance home purchases.

    2
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    Gavekal Dragonomics

    Inventories Still Weigh On Housing

    Many Chinese cities are still working off the overbuilding of recent years, so developers have little reason to start new housing. Until this is resolved, improving housing sales will do little to boost the economy. This excess supply will continue to weigh on construction for at least another year.

    0
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    Gavekal Dragonomics

    Five Macro Questions For The Rest Of 2015

    1. Will economic reform make more progress? 2. Will interest rates keep falling? 3. With housing recovering, will construction also rebound? 4. Will investment growth stabilize? 5. Will deflation intensify?

    2
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    Gavekal Dragonomics

    A New Market For Power

    China’s government has a new plan to reform the electricity sector, introducing a more competitive, market-based pricing system and encouraging cleaner power. If the reforms are successful, the big winners will include end-users and greener, more efficient producers. The losers will be the grid companies, which face a future of squeezed margins.

    1
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    Gavekal Research

    5C China: Why The Crude Buying Spree?

    China’s economic growth may be slowing, but its appetite for oil imports is undiminished. In the first quarter of 2015, China imported a record 589mn barrels of crude, up 7.5% from the first quarter of 2014. Last month alone, China imported 222mn barrels of oil, overtaking the US, which imported a relatively modest 216mn barrels, as the world’s biggest importer.

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