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Gavekal Research
Louis Gave
Jan 03rd 2018
The Drains On Liquidity
For ease of math, assume that the world consumes 100mn barrels of oil a day. Then further assume an inventory across the system equal to about 100-days’ usage (in pipelines, ships and refineries). Thus, when the price of oil rises by US$10/bbl in three months—as occurred in 4Q17—a “liquidity drain” of about US$100bn is created.
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Gavekal Dragonomics
Long Chen
Jan 03rd 2018
China In 2018: Continuity And Centralization
China is set for another year of decent growth in 2018. The latest set of policy conclaves have re-affirmed the broad policy direction: more emphasis on the quality of growth than its speed, and continued efforts in the "three key battles" against financial risk, poverty and pollution. The main financial goals are to cut corporate debt/equity ratios rather than to reduce overall national leverage.
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Gavekal Research
Anatole Kaletsky
Jan 02nd 2018
The Big Questions For 2018
Many of the important questions confronting investors at the beginning of 2018 are the same as they were 12 months ago. And in most cases I would suggest the same answers. This may seem boring or stubborn, but it is quite reasonable in the middle of a long term economic expansion and structural bull market.
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Gavekal Research
Louis Gave
Dec 19th 2017
Cui Bono?
Today, with European growth humming along and Beijing having (again) shown an ability to keep China’s economy on a sustained expansion path, no one seems fazed about a possible economic downturn. Apart from the UK (where the obsession is Brexit), concern centers on geopolitical risks. Yet depending on their region, investors are worrying about very different things.
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Gavekal Dragonomics
Long Chen
Dec 19th 2017
Macro Update: A Safe Landing In 2018
In our quarterly chartbook, Chen Long reviews the economy’s direction since the Party Congress and explains the outlook for 2018. Financial regulation is tightening, and the tradeoff between growth and the environment is shifting. But with construction holding up and inflation surprisingly strong, the base case is still for a moderate slowdown.
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Gavekal Research
Louis Gave
Dec 15th 2017
The Questions For The Coming Year
The apparent glide path into year-end suggests that 2018 should offer up more of the same seen in 2017. Louis does not rule out a continuation of this “Goldilocks” scenario, but worries that global inflation could be brewing in unexpected quarters at a time when frenzied trading in speculative assets such as bitcoin produces countervailing responses from policymakers. In this wide-ranging tour across the investment landscape he asks whether, in...
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Gavekal Dragonomics
Yanmei Xie
Dec 13th 2017
Is Beijing Winning The Battle For Blue Skies?
An unprecedented campaign to reduce air pollution has shuttered factories across north China, with a success that has upended the consensus view that local-government officials always favor economic growth over the environment. In this piece, Yanmei examines whether this change in environmental enforcement is going to be temporary or permanent.
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Gavekal Dragonomics
Arthur Kroeber
Dec 12th 2017
A Good Few Decades, But Not A ‘Chinese Century’
The China Economic Quarterly will cease publication with this issue, which also marks its 20th anniversary. CEQ started life as a newsletter for a small coterie of executives and observers interested in what was then a peripheral bit of the world economy. As China became more important and information about it in more demand, we built the Dragonomics research service around it. Today China is crucial in any discussion of global affairs, and the...
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Gavekal Dragonomics
Joe Studwell
Dec 12th 2017
Lessons From History
Confessions of an analyst who got China wrong in 1997, but created a successful business and career anyway.
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Gavekal Dragonomics
Barry Naughton
Dec 12th 2017
A Tarnished Triumph
China’s economy has grown faster than even the biggest optimists imagined two decades ago. Yet social and political change has lagged behind, while policy has become less reformist and more statist. As Beijing pours ever more resources into low-productivity prestige projects, the economic future is unlikely to be as bright as the past.
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Gavekal Dragonomics
James Kynge
Dec 12th 2017
Never A Brother In Arms
Over the past 20 years, China failed to follow the path Western powers had scripted for it. Instead, it is emerging as a different type of global leader, defying conventional wisdom and generating new challenges for the supporters of the old order.
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Gavekal Dragonomics
Joerg Wuttke
Dec 12th 2017
Twenty Years Of Gain, And Much Pain
The China that foreign businesses operate in today is immensely different from the one they ventured into 20 years ago. Challenges have multiplied for MNCs along with China’s economic and political rise.
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Gavekal Dragonomics
Yukon Huang
Dec 12th 2017
Misreading The Past, Misjudging The Future
Smart observers have repeatedly got China wrong over the past three decades, selling short its growth potential and exaggerating its fragility. Chances are that many of today’s dark forecasts will prove wrong as well.
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Gavekal Dragonomics
Angel Hsu
Dec 12th 2017
The Environmental Horizon: Still Murky
At long last, Beijing is getting serious about tackling the huge environmental problems caused by breakneck growth. Much more improvement is needed to clean up China’s environmental record both at home and abroad.
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Gavekal Dragonomics
Alec Ash
Dec 12th 2017
Waiting For Their Generation
Young Chinese who came of age during “Reform and Opening” have more liberal notions than their elders for China’s future. The tectonic plates of government and society are moving in opposite directions, but we will have to wait at least 20 years for a decisive shift to occur.
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Gavekal Dragonomics
Pallavi Aiyar
Dec 12th 2017
Why India Will Never Be China
Drawing a comparison between Asia’s two giants is tempting, but differences outnumber similarities. Despite the appeal of China’s economic model, there is little chance that Asia’s oldest democracy will follow in Beijing’s footsteps.
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Gavekal Dragonomics
Richard McGregor
Dec 12th 2017
Pax Americana-Sinica
China’s rise is making it increasingly costly for the US to uphold Pax Americana in Asia. China wants to replace it, but scant regional enthusiasm means Pax Sinica is some way off. For the next two decades, an uneasy truce should hold in Asia.
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Gavekal Dragonomics
Melanie Hart
Dec 12th 2017
Handicapping The Global Power Shift
China still oscillates between a desire to promote consensus and collaboration on the international stage, and powerful hegemonic and self-interested urges. More concerted international efforts will be needed to make sure the former prevails.
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Gavekal Dragonomics
Dec 12th 2017
Understanding China, In 20 Books (And One Movie)
An annotated reading and viewing list for those who just can’t get enough of China.
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Gavekal Dragonomics
Arthur Kroeber, Joe Studwell, Barry Naughton, James Kynge, Joerg Wuttke, Simon Cartledge , Peter Lovelock, Yukon Huang, Angel Hsu, Alec Ash, Pallavi Aiyar, Richard McGregor, Melanie Hart
Dec 12th 2017
CEQ: China 20/20
In this final issue of China Economic Quarterly, an all-star cast of contributors takes a look back at how the country has changed since 1997, and a look forward at how China, and its global impact, might evolve in the next couple of decades. The basic lesson is that it has never paid to underestimate China’s growth potential and capacity for change.
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Gavekal Research
Research Team
Dec 08th 2017
Our 2017 Holiday Reading List
History, far from being over, looms large in this year’s Gavekal holiday reading list. From failing empires in the Middle East to Europe’s ceaseless struggle for dominance and Asia’s inability to bury ghosts, our writers consider how the past is shaping our future. As befits a research firm, we have lots of economics with a tour of the stagnation debate and an assessment of the threats and benefits offered by artificial intelligence. We consider...
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Gavekal Dragonomics
Ernan Cui
Dec 07th 2017
The End Of The Preschool Boom
China’s busy and ambitious parents have driven a huge boom in private preschools, with the number of students roughly tripling over the past decade. But the sector is now clouded by allegations of child abuse, which will only strengthen a shift to tougher regulation and public provision of preschools. For now, the private preschool boom is over.
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Gavekal Research
Udith Sikand
Dec 06th 2017
Asia’s Triple Merit Scenario Lives
Last week, the Bank of Korea raised its benchmark interest rate for the first time in six years and other Asian central banks seem likely to follow suit. This is not especially surprising given the ongoing global expansion and tightening moves by the Federal Reserve, which have narrowed short-rate differentials for Asian currencies. The worry, as elucidated by Anatole last week, is that such an expansionary scenario threatens the delicate “not...
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Gavekal Dragonomics
Thomas Gatley
Dec 05th 2017
The Deleveraging Progress Report
Can China manage corporate deleveraging without a credit crunch? Leverage ratios improved in 2015 and 2016, but progress has been more mixed in 2017, as companies borrowed more but raised less new equity. In 2018, Thomas expects stable or modestly deteriorating leverage ratios, with slowing growth somewhat offset by recovering equity issuance.
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Gavekal Research
Charles Gave
Dec 04th 2017
From A Ferrari To A Jeep
When I turned 70 (I am still struggling with the fact that I now have a “7” handle), the Gavekal partners had the good idea of bringing into the firm some very bright “quants” and giving them a simple mandate: quantify and qualify the various investment rules that I have been using for decades (somewhat sporadically, and often with biases that I myself sometimes struggled to acknowledge).
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Gavekal Research
Anatole Kaletsky
Dec 04th 2017
Strategy Monthly: The Long Cycle Continues
As equity markets everywhere continue to trade higher, money managers are getting increasingly nervous about how long the rally can last. In December’s Strategy Monthly, Anatole argues that we are still only half-way through a secular bull market that can last through the end of the decade. With further US rate hikes on the cards, barring any nasty surprises non-US markets are likely to outperform going forward. The only fly in the ointment is...
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Gavekal Dragonomics
Rosealea Yao
Nov 30th 2017
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.
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Gavekal Dragonomics
Ernan Cui
Nov 28th 2017
The Chinese Consumer: Outlook & Trends 2017
In our annual review of the Chinese consumer, Ernan outlines the short-term outlook and longer-term trends in household spending. This chartbook explains why consumption growth has been a bit disappointing in 2017, why the outlook for 2018 is better, what are the drivers of consumption upgrading, and how the transition to online is playing out.
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Gavekal Research
Long Chen
Nov 24th 2017
Don’t Panic Over Chinese Equities
The A-share equity market suffered its biggest one-day sell-off this year yesterday. But Chen Long argues that conditions in fact still remain benign for Chinese equity investors. The earnings outlook is favorable, the market is cheap by global standards, and international investors are beginning to trim their longstanding underweight.
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Gavekal Research
Udith Sikand, Long Chen
Nov 24th 2017
Not All Bank Recaps Are Created Equal
A month ago, India outlined a US$32bn plan to fix its publicly-controlled banks’ bad debt problem, sparking a more than 30% rally in their share prices. The plan remains under wraps, but the “round tripping” approach will see deposits lent to the government as recapitalization bonds and then injected back into banks as fresh capital. The question is whether India’s effort is credible enough for banks to both write off debt and have enough...
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Gavekal Research
Anatole Kaletsky, Long Chen, Cedric Gemehl, Charles Gave
Nov 22nd 2017
New York Seminar — November 2017
At Gavekal's November seminar in New York Louis Gave, Arthur Kroeber, Cedric Gemehl and Anatole Kaletsky presented their macro outlooks and investment recommendations.
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Gavekal Dragonomics
Long Chen
Nov 21st 2017
Towards A Single Asset Management Regime
For the first time, China is to bring its highly heterogeneous RMB100trn asset management industry under a single regulatory umbrella. New rules published last week promise to increase transparency, curtail leverage and reduce complexity and hidden risks, especially in the booming business in so-called “wealth management products”. However, writes Chen Long, the draft regulations contain a number of omissions, ambiguities and loopholes which, if...
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Gavekal Research
Yanmei Xie
Nov 16th 2017
Living With A Nuclear North Korea
A special envoy of Chinese president Xi Jinping will head to North Korea in what is being billed as a gesture of solidarity and friendship between the two countries’ communist parties. Coming just days after Donald Trump’s visit to the region, the move appears to give the lie to Trump’s assertion that he successfully convinced Xi to “use his great economic influence” to press North Korea to give up its nuclear weapons.
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Gavekal Research
Anatole Kaletsky
Nov 16th 2017
Asset Allocation For The Global Bull Market
On Monday Anatole outlined his fundamental reasons to believe that the world is enjoying a global bull market that still has years to run. Today he reviews the investment recommendations that flow from his thesis, and examines how investors can best play the unprecedented divergence of the US business cycle from the cycles in Europe and the emerging markets.
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Gavekal Dragonomics
Long Chen
Nov 15th 2017
Decent Growth Risky For Bond Yields
China’s economic data for October confirms that the moderate slowdown in growth is continuing as the housing cycle fades and government spending weakens, even as corporate earnings benefit from higher-than-expected inflation. Chen Long now sees an increasing risk for domestic bond yields in this combination, though it is bullish for equities.
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Gavekal Research
Long Chen
Nov 13th 2017
Reading China’s Financial Opening
Over the next five years Beijing says it will progressively relax—and eventually scrap—the restrictions it currently imposes on foreign ownership of Chinese financial institutions. In practical terms, this is unlikely to prove a great game-changer for the industry, but it is still a significant move with positive implications for Chinese equities.
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Gavekal Dragonomics
Ernan Cui
Nov 13th 2017
Three Retail Takeaways From 11.11
It was a busy weekend for China’s online retailers, who reported huge sales numbers for their November 11 promotional events. Alibaba’s aggressive strategy is helping uphold its dominance even as market growth slows, and online retail integrates with offline. In this piece, Ernan cuts through the wave of publicity with three simple points.
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Gavekal Research
Anatole Kaletsky
Nov 13th 2017
This Is (Still) Not A Peak: It’s A Global Bull Market
It was almost five years ago that Anatole started to shout loudly that the US equity market had achieved a clear breakout from its more than decade long bear market trading range. His advice has been to stick with the trend. In light of this year’s near across-the-board upward moves in risk assets globally, it would be tempting to back away from this positioning. However, in this piece he argues that the bull market is now going global and so it...
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Gavekal Dragonomics
Thomas Gatley, Ernan Cui
Nov 09th 2017
From Tianjin, Affordable Luxuries
The surging population of affluent Chinese households is a key global market for all kinds of luxury goods. Foreign brands have done well in this boom, but the market is getting more competitive as local firms up their game. Thomas and Ernan report from Tianjin on two very different companies that are both succeeding in high-end niche markets.
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Gavekal Research
Louis Gave
Nov 08th 2017
A Brave New, New World?
The traffic has been one-way. Since mid-August, the Philly semiconductors index is up 23%, the Nikkei 225 by 18%, the S&P energy index by 14% and the S&P materials index by 10%. In other words, all “deep-cyclicals” and “price monetizers” are ripping higher. So what to make of this?
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Gavekal Research
Arthur Kroeber
Nov 07th 2017
All Pomp, No Circumstance
President Trump’s 12-day trek through Asia promises much pomp and little circumstance. Since his administration has no strategic vision for the region and has chosen to abandon many of the tools of diplomacy in favor of overblown rhetoric and empty threats, there is little chance of material progress on any important economic or security issues.
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Gavekal Dragonomics
Long Chen
Nov 07th 2017
The View Into 2018
The Chinese economy has experienced a nice cyclical recovery since 2016, but now most forecasters are expecting a loss of momentum in 2018. So how is this slowdown likely to play out? In this piece Chen Long lays out his case for a gradual cooling in both real and nominal growth that will not spook global markets.
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Gavekal Dragonomics
Dan Wang
Nov 03rd 2017
The Politicians Behind A Big Data Boom
A local politician named Chen Min’er rose to prominence last week with his promotion to the Communist Party’s ruling Politburo. Chen’s main claim to fame is his transformation of Guizhou, one of China’s poorest provinces, into a supposed powerhouse of “big data.” But Chen’s real skill was in using political leverage from his ties to Xi Jinping.
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Gavekal Dragonomics
Rosealea Yao
Nov 02nd 2017
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.
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Gavekal Research
Dan Wang
Nov 01st 2017
A Different Order Of Political Risk
Investors in big technology companies, both US and Chinese, are waking up to political risk. In Washington yesterday, senators hauled lawyers for Facebook, Google and Twitter over the coals for carrying foreign-funded political advertisements during the 2016 presidential election campaign in contravention of US law. Meanwhile in China, the government is demanding representation on the boards of big internet companies, including Tencent, Alibaba...
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Gavekal Research
Will Denyer
Nov 01st 2017
Strategy Monthly: How Much Longer For Low Rates?
For decades fixed income and equity markets have enjoyed a secular bull market, propelled higher by low real long term interest rates, depressed by a glut of global savings. In this Strategy Monthly, Will Denyer updates his Capital Provider Ratio, a powerful demographic tool which indicates that the growth of global excess savings has peaked, and that the glut will soon begin to dry up, with far-reaching consequences for global asset markets.
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Gavekal Dragonomics
Andrew Batson
Oct 31st 2017
The Reconstruction Of The Administrative State
The clear message from the Communist Party Congress is that Xi Jinping has political primacy for the foreseeable future. But what does Xi want to do with all his power? In this piece, Andrew summarizes three of the more concrete policy trends Xi signaled at the Congress. Behind all three is a drive to strengthen the apparatus of the Party-state.
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Gavekal Dragonomics
Thomas Gatley, Andrew Batson
Oct 24th 2017
Unmixing The Signals Of The Industrial Cycle
China’s business cycle indicators are sending mixed signals in 2017: PMI surveys show a steady acceleration, even though housing is cooling, while the official indicator of industrial value-added has been strangely volatile. In this piece, we clear up the confusion, and show that industry is indeed tracking the gradual slowdown in construction.
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Gavekal Dragonomics
Andrew Batson
Oct 20th 2017
The Housing Slowdown Stays Contained
China’s housing downturn is here: September data showed nationwide property sales declining for the first time since 2015. But the government’s attempt to cool sales and prices while limiting the impact on the real economy is working. While growth will certainly slow further, this manageable slowdown will not require policy to loosen anytime soon.
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Gavekal Research
Andrew Batson
Oct 19th 2017
The New Era Of Chinese Socialism
In his first term, Xi Jinping has been nothing if not ambitious. So it is not surprising that, in a speech to mark the start of his second term, he announced a series of ambitious goals. It is more surprising that, in Xi’s “new era” of Chinese socialism, the pursuit of national greatness will no longer be centered around economic growth.
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Gavekal Research
Louis Gave
Oct 19th 2017
Experiences, Not Things
It is a core Gavekal belief that good money management is more about “avoiding losers” than “picking winners”. Yet sell-side research focuses almost entirely on identifying winners. This leaves an avenue for a small, independent firm like ours to lean the other way and help clients identify “losers”.
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Gavekal Research
Will Denyer
Oct 17th 2017
The Savings Glut’s Long Life And Slow Death
Slow-moving demographic trends have a big impact on asset prices. For the last 35 years, the age structure of the world’s population has created a global savings glut which has propelled secular bull markets in both equities and bonds. Now that demographic tailwind is fading. In a few years it is likely to reverse. In this paper Will introduces a new measure, the Capital Providers Ratio, which relates the impending demographic shifts to the...
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Gavekal Dragonomics
Long Chen
Oct 16th 2017
The Good Kind Of Capital Outflow
China’s government has been gradually restricting the ability of households and companies to move money out of the country, with one big exception: outbound portfolio investment is actually getting more support not less. As the Connect schemes with Hong Kong ease worries about capital flight, they have become the preferred channel for outflows.
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Gavekal Research
Arthur Kroeber
Oct 12th 2017
A Post-Reform China
The 19th Congress of the Chinese Communist Party will decide whether Xi Jinping emerges as the head of a more “presidential” system of government, or whether the current collective system holds sway. Either way, Arthur argues that hopes for a new burst of reform in the Congress’s aftermath are probably mistaken.
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Gavekal Dragonomics
Rosealea Yao
Oct 10th 2017
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.
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Gavekal Dragonomics
Thomas Gatley
Oct 05th 2017
The Expanding Universe Of Private Companies
In 2017, China is on track to host a record-setting number of IPOs, mostly by private firms. Big state firms may still dominate stock market indexes, but they are no longer the only option for investors. The number of Chinese private firms large and liquid enough to be of interest to investors is ten times larger than it was just five years ago.
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Gavekal Dragonomics
Tom Miller
Oct 02nd 2017
Southwest Rising
For almost two decades, China’s government has been pouring investment into its inland provinces. Tom Miller visits the southwest and finds the results have been striking: major cities have modernized and incomes are up substantially. Better infrastructure and industrial relocation are now arguably driving a self-sustaining regional growth story.
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Gavekal Dragonomics
Long Chen
Sep 28th 2017
Macro Update: Prolonging The Peak
In our latest quarterly chartbook, Chen Long reviews the mixed signals from China’s economy and markets. While the cycle has peaked, the government has still found ways to prolong industrial reflation. But economic growth and bond yields will head down from here, though gradually, as the tightening of financial regulation has been well managed.
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Gavekal Dragonomics
Yanmei Xie
Sep 26th 2017
The Bottom Line On North Korea
Even as the US and North Korea exchange more threats, actual US policy still focuses on getting China to apply economic pressure. Yanmei argues that while China has gradually cut trade ties with the North, it wants the regime to stay in place. This is China’s bottom line, not because of any friendship but because China’s own interests demand it.
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Gavekal Research
Udith Sikand
Sep 21st 2017
EM Can Handle Fed Fallout
Yesterday, the “world’s central bank” confirmed that it will reverse its quantitative easing policy and likely raise interest rates in December and then three times in 2018. On the same day, the benchmark emerging market index nudged higher and is only a whisker off a six year high. Ordinarily, Federal Reserve tightening is terrible news for EMs, especially for those economies with the temerity to simultaneously try policy easing. Yet this is...
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Gavekal Dragonomics
Ernan Cui
Sep 21st 2017
Online Retail Is Maturing
The red-hot growth of online retailing in China has cooled in recent years, but it heated up again in the first half of 2017. Ernan argues this is likely a blip, as the fundamentals show online retail is an increasingly mature market. Leading firms are now focusing on the convergence of offline and online retail as the next big opportunity.
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Gavekal Research
Charles Gave
Sep 19th 2017
Reviewing My Calls
Over the years my research has focused on broad concepts which have been applied in many situations and lots of reports. These include ideas such as the disruptive power of platform companies, assets whose value comes from scarcity rather than efficiency, or the effect of firms running on Schumpeterian, Malthusian or Ricardian principles. Once in a while, however, I do get specific and make investment calls. Having had a little time this week, I...
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Gavekal Dragonomics
Rosealea Yao
Sep 18th 2017
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.
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Gavekal Dragonomics
Arthur Kroeber
Sep 15th 2017
High Financial Anxiety
China’s financial system has its troubles, but a large-scale crisis is unlikely. Localized problems among poorly run, small-scale city and rural banks are the bigger risk.
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Gavekal Dragonomics
Sep 15th 2017
Your Guide To The Maze
China’s financial system has grown almost five-fold and seen a proliferation of players and products over the past decade. We try to impose order on chaos and explain how the system works.
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Gavekal Dragonomics
Long Chen
Sep 15th 2017
A Short History Of Financial Deregulation
Financial deregulation has seen a cartel of national state-owned banks give way to a bewildering array of local banks, non-bank lenders, wealth management products and loans disguised as investments. Regulators are tightening their grip, yet so long as Beijing demands high-speed growth, it will have to tolerate some financial misbehavior.
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Gavekal Dragonomics
Long Chen
Sep 15th 2017
Three Sets Of Books
China’s financial system has grown dizzyingly complex, but at its heart sit the banks, which provide most of the funds for shadow lending by non-banks. To assess the system’s risks, we need to understand the banks’ three credit books: their loans, their “investments” routed through non-banks, and their off-balance-sheet wealth management products.
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Gavekal Dragonomics
James Stent
Sep 15th 2017
China’s Banks Are Better Than You Think
China’s banks get a bad rap. But actually they are pretty well run, especially if one understands their twin roles as commercial actors and tools of state development policy.
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Gavekal Dragonomics
Yanmei Xie
Sep 15th 2017
Rebooting China Inc.
Beijing is tightening controls on cross-border deals. The good old days of unhindered and lavish outward investment are over. Strategic ODI is back in fashion, with China’s SOEs at the helm.
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Gavekal Dragonomics
Agatha Kratz
Sep 15th 2017
Beijing’s Bid To Make US Rail Great Again
CRRC is winning contract after contract in the US light rail market, slowly squeezing out traditional competitors. Its secret? The promise of direct investment and job creation.
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Gavekal Dragonomics
Jonathan Landreth
Sep 15th 2017
Hollywood Hoo-ha
Chinese investors have developed a taste for Hollywood, but their buying spree has drawn more scrutiny than tangible benefits. With their wings clipped by new foreign investment rules, their focus will turn back to their home market.
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Gavekal Dragonomics
Matthew Forney
Sep 15th 2017
Finally, China Learns To Kick Ass
When future historians seek to mark the moment when China celebrated its arrival as a world power, they may well point to its newly crowned highest-grossing movie, Wolf Warrior 2. The film is repudiates every sick-man-of-Asia slight China has suffered since the Opium War, and tells the world: those days are over; China is powerful; get used to it.
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Gavekal Dragonomics
Ian Johnson
Sep 15th 2017
Dealing The Right Kind Of Opium
Xi Jinping’s embrace of traditional Chinese religions is a highly political move to build up popular support. But his hostility to Christianity, Islam and Tibetan Buddhism could cost him dearly in terms of social stability.
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Gavekal Dragonomics
James Stent, Ian Johnson, Agatha Kratz, Jonathan Landreth
Sep 15th 2017
CEQ: The Financial Labyrinth
Is China’s financial system going to collapse? The speed of credit growth, the proliferation of financial institutions and financial products, and the chaotic and fragmentary data all make it reasonable to fret that China is on the verge of catastrophe. This issue of the CEQ is our attempt to bring clarity to this mystifying landscape.
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Gavekal Research
Dan Wang
Sep 14th 2017
Asian Hardware Makers Trump California Engineers
When Apple launched its new lineup of smartphones a couple of days ago, the loudest cheer may have come not from its new donut ring headquarters in Cupertino, but the factory lands of Taiwan and Korea that house its key component suppliers. Launching a flagship phone whose innards are in short supply represents a subtle shift in power from software engineers in California to hardware makers in Asia.
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Gavekal Dragonomics
Andrew Batson
Sep 14th 2017
Straight On Through The Party Congress
China’s economic data for August confirmed that growth has stepped down a bit in the third quarter. The long-anticipated slowdown is for real, but is also still quite gradual. Andrew argues that policymakers will be comfortable with this situation, and that we should not expect a big change of direction after the Party Congress in October.
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Gavekal Research
Louis Gave
Sep 12th 2017
Disasters, Bond Yields And The Dollar
In the past few weeks the US administration cut a deal with opposition Democrats to keep the government open, increasing the likelihood of a budget deficit expansion, and a string of natural disasters have roiled North America. In turn, these events seem to have triggered a sell-off in the US dollar and a global bond rally. Louis outlines two scenarios for where things could go from here.
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Gavekal Research
Long Chen
Sep 11th 2017
After The Renminbi Rally
The last renminbi bears are throwing in the towel: with Chinese corporates unwinding the dollar holdings they have accumulated over the last two years, the renminbi is up strongly. Although the PBOC is for now happy to step back and let appreciation happen, there are still limits to how much it will want the trade-weighted exchange rate to rise.
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Gavekal Research
Louis Gave
Sep 08th 2017
Audio & Transcript — Gavekal Research September Call
In yesterday’s monthly call Louis Gave presented his view on the global investment outlook for the rest of the year. He argued that the key story so far in 2017 has been the strong performance of Asian equities, which has added a second leg to a bull market led by US technology and consumer stocks. The question is whether this can last.
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Gavekal Dragonomics
Thomas Gatley
Sep 07th 2017
The New Economy Takes The Baton
Second-quarter earnings for Chinese listed companies showed heavy industry still enjoying strong profit growth, but the more important trend is the consistent rise in profits in the “new economy.” As industrial reflation gradually cools, Thomas argues, these consumer, healthcare, and technology firms are set to outperform.
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Gavekal Research
Tom Miller
Sep 06th 2017
A New World Order In The Making
It’s all too easy to laugh at the BRICS group, a motley crew of five developing nations with little in common other than the fact that they’re (mostly) big and not yet rich. The term has been mocked as a “Bloody Ridiculous Investment Concept”. So why do the BRICS themselves take it so seriously?
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Gavekal Research
Louis Gave
Sep 05th 2017
Strategy Monthly: A Two-Legged Equity Bull Market
For the past several years, the brightest spot in global equity markets has been the US, and in particular tech and consumer stocks. This is changing, and we now have a "two-legged" equity bull market led both by US tech stocks and by a resurgent Asia. In our review of global investment conditions Louis explains why this is so, and argues none of the obvious land mines is likely to go off at any time soon.
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Gavekal Research
Louis Gave
Sep 04th 2017
The Difference A Couple Of Years Makes
In August 2015 the offshore renminbi fell -4.5% against the US dollar, unleashing a global panic as investors fretted that another big deflationary downdraft beckoned. Fast forward to August 2017 and the renminbi rose a little over 2.07%, making it the world’s best performing major currency—it even outstripped rises in the euro and Scandinavian currencies.
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Gavekal Research
Yanmei Xie
Sep 04th 2017
Tremors On The North Korean Border
Yanmei Xie reports from China’s border with North Korea, where local residents and officials were left largely unshaken yesterday by the earth tremors from Kim Jong Un’s latest and biggest test of a nuclear bomb. Despite imposing some trade sanctions on its troublesome neighbor, Beijing has no desire to back the North Korean regime into a corner.
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Gavekal Research
Louis Gave
Aug 31st 2017
Deteriorating Market Signals?
We have a rule of thumb at Gavekal that when the S&P 500 equal-weighted outperforms the “S&P 500 index”, our equity clients are cheery since beating the benchmark is fairly easy. At such times, clients will typically take more risk. The reverse is, of course, true: outperformance by the S&P 500 makes for grumpy clients, tougher meetings, and less appetite for risk-taking. In the latter case, there is a tendency for investors to rush...
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Gavekal Dragonomics
Rosealea Yao
Aug 31st 2017
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.
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Gavekal Dragonomics
Ernan Cui
Aug 29th 2017
Mortgages Take A Bite Out Of Consumption
Despite the recovering economy, household consumption in China has slowed this year rather than accelerated. As Ernan explains in this piece, the culprit is the surge in mortgage debt, which has meant a sharp increase in the burden of mortgage payments on household budgets. While income growth is solid, less of the gains are available to spend.
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Gavekal Dragonomics
Yanmei Xie
Aug 25th 2017
China Unicom’s Mixed-Ownership Mixup
China Unicom says its US$11.6bn share placement will bring it ten new strategic shareholders, including the nation's biggest internet firms. State media are touting the deal as a triumph of the "mixed ownership" reform for state enterprises, but it looks more like a bailout timed to score political points ahead of this fall's Party Congress.
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Gavekal Dragonomics
Yanmei Xie, Dan Wang
Aug 22nd 2017
The Electric Passenger-Car Acid Test
China's industrial planners have a clear goal for electric cars: they want China to be the world's biggest market, and the global technological leader, by 2025. The first goal is already in the bag, thanks to massive subsidies and orchestrated purchases by city governments. Gaining technological leadership will be a much tougher slog.
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Gavekal Dragonomics
Thomas Gatley
Aug 17th 2017
The China Inc. Annual Report 2017
This chartbook outlines the recent core trends in China’s corporate sector. There has been a major rebound in revenues and profits, but most firms are using this to repair balance sheets rather than boost capex. So leverage is down and debt servicing ability is up. But the profit cycle is now likely at its peak, as is firms’ ability to deleverage.
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Gavekal Research
Louis Gave, Charles Gave
Aug 16th 2017
Carthago Delenda Est
Global geopolitics is characterized by the “land-based” empire of China challenging the dominant “maritime” empire of the United States according to Louis and Charles. What they cannot figure out is the seemingly contradictory responses of Washington to this well telegraphed challenge. In this piece they examine pressing challenges to American power and explore the investment consequences, which may come home to roost far quicker than most...
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Gavekal Research
Long Chen
Aug 15th 2017
China’s Slow Exit From Reflation
China’s first monthly data for the second half of 2017 showed growth momentum softening. While reflation peaked in the first half of 2017, the story is still that the exit from reflation will be very slow and gradual. Economic policy will be largely on hold in this period: tightening has peaked, but the switch to easing is still a long way away.
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Gavekal Research
Arthur Kroeber
Aug 14th 2017
The Limits Of Magical Thinking
A persistent American fantasy of hardliners is that threats of force will magically cause other countries to abandon their interests and cave in to US demands. The current occupant of the White House is taking this magical thinking to new heights in his approach to Asia. But thankfully, despite the dire headlines, the real-world impact is small.
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Gavekal Research
Louis Gave
Aug 09th 2017
The Most Important Change And Its Natural Hedge
I don’t usually quote mass murderers, but when I do, I usually fall back on Lenin’s quip that “there are decades when nothing happens, and weeks when decades happen”. Lenin was referring to the Russian Revolution which took place a hundred years ago and to this day still casts a long shadow. To some extent, the Russian Revolution, itself a bastard child of the first world war, crystallized the end of an era for Europe. Thereafter the world’s...
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Gavekal Dragonomics
Ernan Cui
Aug 03rd 2017
The Lull In The Tourism Boom
Chinese outbound tourism is having a rough 2017: growth in international travelers is down to about 6%, from 20%-plus growth in earlier years. So has something fundamental in the Chinese tourism story changed, or is this just a blip? In this piece, Ernan argues this slowdown is largely temporary, caused by events in key destinations in Asia.
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Gavekal Research
Rosealea Yao
Aug 01st 2017
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.
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Gavekal Research
Louis Gave
Jul 26th 2017
When Smoking Pays
Baseball cards, Beanie Babies, bitcoins... For the last eight years, governments have regarded them as much the same sort of thing, taking a broadly tolerant attitude to the proliferation of crypto-currencies. Not anymore. Yesterday the US SEC declared that blockchain-based digital tokens such as bitcoin are in fact securities and thus subject to the full panoply of SEC regulation.
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Gavekal Dragonomics
Andrew Batson
Jul 24th 2017
Taking Stock Of The Investment Cycle
Investment drives China’s growth, but the state of the investment cycle is now being obscured rather than revealed by the most closely followed indicator of capital spending, fixed-asset investment. In this piece, Andrew updates his model of monthly real growth in gross fixed capital formation, and draws three conclusions from its signals.
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Gavekal Research
Arthur Kroeber
Jul 20th 2017
Reading Trump’s Trade Signals
Donald Trump came into office six months ago today promising to rip up the rules of global trade in order to put America’s narrow interests first and cut its trade deficit. So far, though, his administration’s trade policies have been more smoke than substance. Global trade volume has accelerated smartly since the US election. Threats of a trade war with the main target, China, fizzled in the face of US business interests, Beijing’s ability to...
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Gavekal Dragonomics
Yanmei Xie
Jul 19th 2017
Reasserting Control Over Outbound Investment
The flow of cross-border M&A from China is reviving as the crackdown on capital flight eases. But as Yanmei argues, the flow of deals is unlikely to repeat the stunning growth surge in 2016, as the government has now reasserted its control over outward direct investment. This environment will likely be friendlier to state firms than private ones.