Fighting Deflation: Production Curbs or Rate Cuts?

China’s economy is slowing and facing renewed deflationary pressures, and the central bank has been reluctant to reduce interest rates because of concerns about inadvertently supporting the property sector. One of the most important factors influencing the duration and extent of deflationary forces will be the severity of production restrictions in highly polluting industries, which Beijing has used in recent years both to boost output prices and for environmental objectives. While these production restrictions are slightly more intense this year, weakening demand conditions suggest that deflationary forces will persist and more monetary easing steps will still be necessary.

Posted November 5, 2019
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Leveraging the Chinese State Against Foreign Firms: Rail and Beyond

The Alstom-Siemens merger was rejected on February 9, in large part because EU competition authorities assessed that the firms’ position within the European rail technology market remained dominant. Though unsuccessful, the enthusiasm of Siemens and Alstom to merge their operations highlights real and growing concerns about the environment among international infrastructure and industrial firms. The emergence and internationalization of large Chinese (often state-owned) conglomerates create intense competitive pressures that extend beyond near-term threats within the EU market – and well beyond the rail sector.

Posted April 4, 2019
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Tightening the Belt (and Road)

The political climate has changed quickly around the Belt and Road Initiative (BRI). Several countries have pushed back over worries about debt sustainability and discontent with financial terms in dealing with Chinese firms. This has already had a clear effect on newly signed BRI-related deals, and Chinese authorities have shifted their rhetoric, toning down and recalibrating BRI promotion.

The initiative is not going away: it benefits from significant high-level support, responds to Asia and Africa’s dire need for infrastructure financing, and continues pre-existing trends in China’s growing global economic engagement, including rising outbound investment. But we believe the next few quarters will witness changes in China’s approach, as well as a slowdown of financing and projects, to address both external and internal concerns generated by the BRI.

Posted September 24, 2018
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