The R-CAT Stabilization Playbook

Our proprietary indicators of China’s economic activity show cyclical momentum stabilized starting in Q4 2018. In the very short term, this suggests the worst of the current slowdown is already behind us. However, that policy-driven stabilization is uneven: some sectors will support overall economic growth in the first half of 2019—with headline data boosted by base effects—and others will continue to present headwinds. In particular, energy, utilities, and infrastructure-related sectors look best positioned to benefit early this year.

Posted February 12, 2019
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Green Shoots in Credit and Activity

Contrary to views that China’s economic slowdown has further to go, both credit data and our proprietary industrial activity indicator, the R-CAT, suggest stabilization of cyclical momentum is actually closer at hand than expected. However, the recovery early in 2019 will be shallow, as trade tensions and the property sector remain key headwinds this year. The PBOC cut banks’ reserve requirements once again today, consistent with an easing bias in monetary policy throughout this year, and cuts to key interest rates are expected as well.

Posted January 4, 2019
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A Milder Winter for Gas Demand

The Trump-Xi meeting in Argentina revived the possibility that China would buy more US energy and agricultural products by March 1. This development coincides with seasonal anti-pollution controls in China, which last winter caused a natural gas shortage as households and factories were forced to replace coal. Wintertime coal conversions are in effect in new places, but policy mandates on gas use are marginally more relaxed and Chinese authorities appear better prepared, suggesting a repeat of last year’s gas shortage is unlikely. Limited storage capacity—rather than rising consumption or supply controls—remains the key risk to rising prices, should winter weather surprise.

Posted December 14, 2018
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