Q1 2016 China Macro Data Recap

China’s macroeconomic data in the first quarter broadly presented a picture of stabilization in the economy, with y/y GDP growth softening only modestly to 6.7% y/y, but recovering sectors appeared limited to an increasingly frothy property market and credit-fueled investment.  The longer-term trend of service sector expansion remained intact, even after a softening contribution to growth from the financial services sector.  While credit growth was robust in Q1, demand for credit remained weak, and softening implied oil demand suggested only a limited recovery within China’s heavy industrial sectors.  Rising default rates within China’s fixed income markets, along with declining turnover in the overnight pledged repo market, bear careful scrutiny in the coming months as a potential threat to Chinese authorities’ efforts to manage medium and long-term interest rates.

Posted August 1, 2017
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September/Q3 2016 Macro Data Recap

Divergence between continued breakneck property sales and an outright contraction in property starts suggests there is more downside ahead for growth expectations based on future building. More importantly, recent restrictions on property-related lending may cause a sharp turnaround in a bubbly market that has been supported more by leverage than seen in previous years. In addition, balance of payments outflows have returned to a pace faster than $50 billion per month, and acceleration of pressure on the currency elevates the probability of changes in exchange rate management.

Posted August 1, 2017
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The State of the State Sector

Today, China’s state-owned enterprise (SOE) reform policy agenda is fragile, and the political process to manage it is ill-defined. Pilot programs geared toward mixed-ownership of central and provincial SOEs are currently underway, but there is a notable mismatch between reform plans and the reality of falling SOE profits and weaker macroeconomic conditions. Additional policy adjustments are expected, but are unlikely to signal significant change in the distortion inducing incentives that shape SOE activity, or SOEs’ dominant positions within some sectors of the economy, including privileged access to credit from the financial system.

Posted August 1, 2017
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