Supply Chain Disruptions Driving Inventory Growth

Chinese corporate inventories of finished goods are accumulating rapidly, as a result of disrupted supply chains caused by lockdowns and other COVID-related restrictions. There is a widening gap between overall industrial production and final demand as China’s current slowdown extends, similar to the inventory buildup in Q2 2020. While supply chain disruptions are temporary and likely to contribute to both domestic and exported inflationary pressures, the medium-term trends caused by rising inventories are fundamentally disinflationary, both within China and for global raw materials prices.

Posted May 13, 2022
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Property Market Chartbook, April 2022

Property market conditions are deteriorating as China faces new COVID outbreaks and continues to respond with lockdowns and other restrictions, reducing property sales. Average housing prices are now declining by 9% nationwide in Q1 2022 according to NBS data, the largest quarterly drop in history. Developers are facing a significant credit crunch from declining presales revenues. Conditions in Shenzhen offer some early hints of the scope of a potential sales rebound after lockdowns end.

Posted April 25, 2022
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The 2022 Policy Outlook After a Disappointing April

The PBOC has abruptly shifted policy messaging in April, and disappointed markets by failing to deliver a cut to the MLF rate despite transparently weak credit demand throughout China’s economy. For the rest of the year, fiscal policy support via a budget revision may be necessary, but interest rates still need to move lower, and the PBOC will be dragged into cuts sooner or later. More troubling is the mixed messaging from Chinese policymakers, which is damaging confidence in a meaningful policy response to counter the lockdown and property-led economic slowdown.

Posted April 24, 2022
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