Public Post
China – living without the world
A video of our longer report from last week: "China -living without the world".
Members Only
China – living without the world
Today we look at the rest of the world's falling market share in China, which is the flip side to China's share gains overseas. With China making most progress in capital goods, this is a big challenge for DM and industrialised Asia. In this, Taiwan looks like a relative winner, and Korea a loser.
Subscribers Only
China – PMIs lifted by prices
The PMIs improved in September. That was led by a further strengthening of pricing, with input prices in the PMI reaching almost 60, the highest level since April 2022. We'd guess this reflects a nominal tailwind from the modest weakening of the USD over the last 12M.
Subscribers Only
China – living without the US
China's market share in the US has fallen sharply, but its market share globally has risen. This disconnect represents some temporary factors, but is also the result of change in China's industrial sector, a factor that differentiates China from 1990s Japan.
Subscribers Only
China – stability, but not in property
The activity data for August were a bit better. That's consistent with the stabilisation of prices that, we think, is the most important economic development recently. We doubt that a real upcycle is beginning, but the economy can start to look better relative to beaten-up expectations.
Subscribers Only
China – credit less bad
At a headline level, credit growth was a bit stronger in August, and with PPI up too, that will likely help market sentiment. But the details remain weak, with all the recovery in August coming from government bonds. M1 growth continues to slow, and savings continuing to flow into time deposits.
Subscribers Only
China – firmer prices
August inflation data raise the probability that the worst of the deflation scare for 2023 is likely over. We doubt there will be much inflation from here, but a stabilisation of prices will likely be a positive surprise relative to weak market expectations.
Subscribers Only
China – no change
Neither exports nor imports changed much in August. That might mean they are bottoming, and there are some indicators pointing in that direction, but it is easier to make the case for Taiwan and Korea. Exports remain 30% above pre-pandemic levels, supporting the trade surplus.
Subscribers Only
China – a touch better
The manufacturing sector has stopped getting worse, and with pricing improving, we are mildly optimistic that this firming can continue. This is more of a second-derivative improvement than a fundamental turn, but any tick up is important when market sentiment is so poor.
Subscribers Only
China – prices not quite as weak
Property prices weakened in July, and are highly likely to fall further in August. However, overall economy-wide inflation ticked up in July, boosted by the rebound in PPI. We are cautiously optimistic that can continue.
Subscribers Only
China – a way forward
This speech from Liu Shijin is well worth a read, both because it outlines a comprehensive policy approach that could address China's current cyclical and structural challenges, and also because it acknowledges that there is no consensus in Beijing yet on the way forward.
Subscribers Only
China – one more negative surprise
As expected, China's July activity release was weak, and also as expected, the PBC cut rates. The one new negative development was the NBS's decision to stop publishing the youth unemployment rate. That decision won't improve confidence in China's macro situation.
Subscribers Only
China – not getting worse
Both the construction and services PMIs fell in July. The manufacturing PMI was also soft, but doesn't seem to be worsening, with some improvement in pricing. We aren't optimistic about growth prospects, but think there could be some second-derivative improvement, helped by the weakening of the USD.
Subscribers Only
China – Taking stock
The Politburo meeting excluded the phrase "housing is for living, not speculation", which seems one step towards our idea of last week, that officials say "property is for speculation". The markets liked the change, but we'd still want more help for households to get excited about a cyclical upturn.
Subscribers Only
China – USD lifting prices?
Industrial prices have ticked up in July. That isn't especially surprising, given the freefall since April. More interesting is whether this reversal shows domestic prices are beginning to feel the effect of the weaker USD.
Subscribers Only
The China Diviner – what if "property is for speculation" after all?
Because of property, China's GDP is as weak as 2008 or 2015. Short of saying housing is for speculation, there's not much that can be done to loosen property policy. Structural change helps, but we'd imagine there's going to have to be more monetary loosening.
Subscribers Only
China – more weak data
In its release today of Q2 GDP data, the NBS highlighted high double-digit growth in NEVs and solar batteries. But there weren't too many other signs of strength, with property and consumption remaining weak.
Subscribers Only
China – weakest inflation since 2008
Property prices fell again in June. That takes our measure of all-economy inflation back to the lowest since 2008. The deflation back then was reversed by enormous policy easing, but that sort of easing isn't at all likely this time.
Subscribers Only
The China Diviner
The PBC continues to ease policy. But that isn't reducing market rates. There are a few possible reasons: the PBC is cutting slowly; rates never move with fundamentals; the market expects growth to improve. All have some validity, but we think there is a real risk of policy being behind the curve.
Subscribers Only
China – trade goes sideways
The statistical surge in exports of March and April has now disappeared from the data. That leaves both exports and imports falling YoY, and leading indicators don't point to either recovering yet.
Subscribers Only
China – weak money and credit
Credit and money supply growth were soft in June. Without something changing, it seems unlikely there will be a rebound soon, with loan demand slowing, the property market weak, and liquidity preference still deteriorating.
Subscribers Only
China – deepening deflation
Both PPI and CPI inflation fell in June, with the overall momentum in real economy prices is now the weakest since 2008-09. There are some tentative signs that a floor will soon be reached for PPI, but no signs of any significant upturn in inflation.
Subscribers Only
China – no turnaround
Orders-inventories did rise in the PMI today. But that is the one positive indicator. In most other ways, the PMIs were weak. Yesterday's Q2 surveys from the PBC also showed a fall in loan demand and continued weak price expectations. There's not much to suggest a turnaround in the cycle.
Members Only
China – debt and deflation
Today's data wasn't all bad, but the overall message is that economic momentum remains weak. With aggregate demand not strong enough to lift prices, deflation is worsening China's debt dynamics. In response, policy is once again loosening, but we think a real turnaround isn't likely yet.
Subscribers Only
China – no change in PMIs
The optimistic interpretation for the weak May PMIs is this is a soft patch that was inevitable after the strong Q1 bounce. But for manufacturing at least, that isn't especially persuasive, and the broad-based weakness of output prices is a warning of more more fundamental challenges.