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East Asia Econ

East Asia Econ

The platform for tracking and understanding East Asia macro

China – will deflation end?

China – will deflation end?

My latest video discussing the inflation outlook. Apart from the anti-involution drive, the stabilisation of demand deposits and property do ease the downwards pressure on prices. But the weakness of aggregate demand remains, and as yesterday's PMI suggested, the outlook for prices remains subdued.

1 min read

China – a weak nominal upturn

China – a weak nominal upturn

While the PMIs don't point to any real improvement, in nominal terms there's been a lift, with input prices above 50 again. That's in line with the credit impulse. But the credit impulse might already have turned, and while PPI deflation has lessened, output prices don't suggest stronger CPI.

2 min read

China – mapping the rise of an auto exporter

China – mapping the rise of an auto exporter

This is a dashboard I've been working on, where you can map China's auto exports by country and type of vehicle over time. It now includes volume and prices at a national level. I'll be adding more series over the next few weeks. I also have a favour to ask.

1 min read

China – softer again

China – softer again

Property prices and sales, investment and retail sales all deteriorated in July. It is at least possible to argue that the worst of the drop in property activity is now completed. That creates room for second-derivative improvement, but even that could be offset by slowing manufacturing capex.

3 min read

China – credit data soft, but M1:M2 ratio stable

China – credit data soft, but M1:M2 ratio stable

I missed this release earlier today. The rise in the credit impulse stalled in July, dampened by slower government, non-state and mortgage borrowing. However, the monetary data remain a bit more constructive: while the recovery in M1 growth slowed, the bottoming relative to M2 remains intact.

1 min read

China – the end of core deflation...or is it?

China – the end of core deflation...or is it?

Today's official data show core CPI has rebounded to almost +1%. That would be an important change, but at best it looks narrow, with almost all the rise coming from "miscellaneous goods and services". The leads from PPI and the PMI remain soft. Separately, yesterday's CA data for Q2 were stable.

3 min read

China – imports perk up

China – imports perk up

Overall exports still don't show a tariff hit, with shipments to ROW offsetting the weakness of direct sales to the US. Imports are more interesting, with signs emerging of an upturn. That so far is (very) mild, but has been enough to cap the trade surplus, albeit at the high level of USD100bn.

2 min read

China – the CNY and deflationary equilibrium

China – the CNY and deflationary equilibrium

Deflation looks like 1990s Japan. But China's exchange rate doesn't. Real CNY depreciation helps exports substitute for the weakness of domestic demand in a way that didn't happen in Japan. It also postpones the sort of stimulus that would ease deflation and provide more direction for markets.

5 min read

China – the trade surplus, the CNY and autos

China – the trade surplus, the CNY and autos

Two things. First, my latest video, discussing what's not surprising about the trade surplus (the rise in capital goods), and what is (that for exports China's global market share gains have accelerated, while for imports, they've fallen). Second, an interactive dashboard on China's auto exports.

1 min read

China – weak PMIs again

China – weak PMIs again

The weakness was true even for pricing, which is the focus of the most recent policy push: input prices did improve MoM, but not to over 50, and output prices fell further. That Beijing has turned its attention to oversupply should help equities, but I am doubtful that alone produces macro recovery.

2 min read

China – another dawn

China – another dawn

Does anti-involution produce macro turnaround when the September combination of stock market and local government bail-out failed? The markets are hopeful. I am more cautious, given China's macro problems are weak demand as well as strong supply. I'd be wrong if household savings behaviour shifts.

6 min read

China – heavy industry still dragging down profits

China – heavy industry still dragging down profits

The government is increasingly focused on the supply-side issue of corporate involution as the driver of unwanted deflation and weak corporate earnings. However, the decline in profits has been led by heavy industry, showing the importance of the weakness of property and aggregate demand.

2 min read

China – export prices starting to rise

China – export prices starting to rise

Based on official data, tariffs have as yet to cause any real reversal in the surge of export volumes that's now been underway for two years. That's even though export prices have, for the first time since 2003, started to rise YoY. It isn't obvious that China is absorbing the cost of the tariffs.

1 min read

China – economy still shifting towards services

China – economy still shifting towards services

Today's release of more details of Q2 GDP are interesting, if puzzling. GDP was held up by a larger contribution from investment, even though construction contracted for the first time since early 2022. The weakness of construction does, however, further the economy's steady shift towards services.

2 min read

China – nominal momentum still weak

China – nominal momentum still weak

Two things stand out in today's big macro release. First, more signs of property bottoming. But there's no indication of a pick-up, which matters given the second takeaway: the weakness of nominal GDP. On my numbers, that grew just 2.4% QoQ annualised, with the fall in the deflator accelerating.

2 min read

China – property prices weaker again

China – property prices weaker again

Property price deflation intensified in June, albeit only mildly. Leading indicators suggest there shouldn't be a new step-down, but only interest rates point to real upside – and interest rates stopped being a reliable lead for the property market some time ago.

1 min read

China – not just government boosting the credit impulse

China – not just government boosting the credit impulse

Continuing recent trends, credit and money data were stronger in June. That helps put a floor under the cycle. The details were softer, with credit growth dependent on government borrowing and mortgage lending still slow. But there are some signs of an upturn in lending to the non-state sector.

2 min read

China – exports up again

China – exports up again

There aren't signs – yet – of China's export juggernaut hitting a wall. The big fall in US exports eased in June, allowing overall exports to continue to creep up, reaching a new post-2022 high. Imports, meanwhile, continue to flat-line, so the trade surplus remains large.

1 min read

China – deepening deflation

China – deepening deflation

I am away from my desk, so for now, just a few charts on the CPI/PPI release. Deflation is deepening, which for PPI is broad-based. Core CPI is more stable, but that's partly due to a rise in "other" prices. Headline CPI is lower on food prices, which have started dropping again.

1 min read

China – structure of GDP shifting, but slowly

China – structure of GDP shifting, but slowly

Recent data show investment fell in 2024 to under 40% for the first time since 2008. On the flip side, consumption edged up, helped by a stabilisation of the savings ratio and a rise in welfare spending. But none of these changes are happening fast enough to boost the cycle.

3 min read

China – still looking like a soft floor

China – still looking like a soft floor

At a headline level, the industrial PMIs were better in June, but the details were weak, and there was no improvement in the services PMI. The rise in the credit impulse is taking away some of the downside risk for the cycle, but there aren't indications that the cycle is about to really improve.

2 min read

China – prices dragging down profits

China – prices dragging down profits

Profits fell 9% YoY in May, and are now close to 5% of GDP, a level that's only been breached twice in the last 15 years. The driver is more demand- than supply-side, in the sense that the upstream profits, hit by the property downturn, are weakest. But even in machinery, profits aren't rising.

2 min read

China – sharp drop in exports to the US continues

China – sharp drop in exports to the US continues

Overall trade trends – strong exports, weak imports, and a big trade surplus – remain in place. But the Trump tariffs are causing big shifts in the structure of exports. Direct shipments to the US have fallen 40% this year, and excluding the pandemic, haven't been this low since 2013.

2 min read