Download - China Macro Outlook
China Macro Outlook
Path towards policy normalisation amidst ongoing pandemic risks February 2021
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ICBC Standard Bank |
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Contents
China Macro Insights
Strong 2020 GDP growth justifies room for gradual policy normalisation 4
China remains on course to lead global recovery in 2021 and beyond 5
Most economies are expected to recover from the severe pandemic shock 6
Solid growth recovery in Q4 exceeded the pre-pandemic output level 7
But consumption remained as a growth laggard throughout 2020 8
Strong supply-side recovery started to show early signs of plateauing 9
Property and infrastructure-led investment rebound is slowing down 10
Exports benefited from unexpected demand for pandemic-related goods 11
Consumption faces fresh lockdown pressure despite notable Q4 rebound 12
Inflation divergence reflects weaker recovery momentum in consumption 13
PBoC may gradually shift away from its highly accommodative credit policy 14
…with extra caution against risks of re-inflating asset bubbles 15
Ultra-proactive fiscal policy is likely to be normalised at the NPC meeting 16
2
China Macro Outlook
ICBC Standard Bank |
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Contents
Market Implications
Front-end interbank rates saw heightened volatility in Jan-2021… 17
…leading to notable movements of CGB yields across different tenors 18
But PBoC is determined to hold policy rates and absorb excessive liquidity 19
PBoC balance sheet expansion is very timid compared to peers… 20
… while rate differentials between China and US remain significant 21
Dollar weakness and macro-recovery continue to support the yuan 22
Yuan’s two-way fluctuation and balanced capital flows to be key focuses 23
Appendix
Appendix I: Market awaits further policy clarity at the March NPC meeting
Key economic targets in the past Government Work Reports (2018 – 2020)
24
Appendix II (a): Phase-One deal remains incomplete 25
Appendix II (b): Shortfall of the Phase One deal might be too big to ignore 26
Appendix III: “Six guarantees” have been Beijing’s top policy priorities in 2020 27
Appendix IV: China’s COVID-19 emergency relief policy package (Feb-Mar) 28
3
China Macro Outlook
ICBC Standard Bank |
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Strong 2020 GDP growth justifies room for gradual policy normalisation
4
China Macro Outlook
● After a challenging Q1, China ended 2020 on a high note: with 2.3% annual growth and 6.5% growth yoy in
Q4, exceeding consensus and recovering beyond pre-pandemic output levels.
● Lifting China’s GDP beyond the CNY 100tn threshold during a pandemic is indeed a significant milestone
for Beijing. That said, the so-called ‘V-shaped’ recovery so-far is heavily reliant on investment and
unexpected resilience in exports.
● Private consumption in itself remained a growth laggard throughout 2020, and it is now facing renewed
challenges from sporadic Covid-clusters and local lockdowns. New measures to further unleash domestic
consumption are expected to be outlined during March meetings.
● That said, the robust 2020 performance still justifies room for gradual policy normalisation in 2021 –
especially fiscal policy – to continue economic rebalancing towards private consumption-based growth.
● Recent shift in PBoC’s monetary stance towards risk prevention against re-inflating asset bubbles, curbing
excessive short-term borrowing, has already put banks and property developers under tighter regulatory
scrutiny. This has also triggered an unexpected episode of interbank liquidity squeeze in January. Given
this context, we think the central bank is unlikely to seek an immediate exit from the highly
accommodative credit policy in the near term.
● On the other hand, the yuan is on course to receive further support from macro fundamentals including
replenishing trade surplus, commitment to gradual policy normalisation, a low interest rate environment
and sufficient yield differentials between US and China. PBoC appears to prefer more two-way volatility.
● In a nutshell, with China’s recovery still facing lingering threats from the global pandemic, 2021 macro
policy tone is likely to remain flexible and data dependent – with emphasis on “stability”. Policy
normalisation is likely to be rolled out at a gradual and managed pace, especially as precautionary policy
buffers are needed in the event of domestic or external uncertainties that may hinder 'dual circulation’.
ICBC Standard Bank |
PU
BLIC
China remains on course to lead global recovery in 2021 and beyond
5
China Macro Outlook
IMF World Economic Outlook Growth Projections (Jan 2021 WEO Update)
Source: IMF, ICBC Standard
-4.9%
5.5%
4.2%
-8.0%
4.3%
3.1%
-3.0%
6.3%
5.0%
1.9%
8.1%
5.6%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2020 2021 2022
Global Economy Advanced Economies Emerging Markets & Developing Economies China
ICBC Standard Bank |
PU
BLIC
Most economies are expected to recover from the severe pandemic shock
6
China Macro Outlook
Growth outlook of key economies
Source: IMF (WEO Jan 2021), ICBC Standard
2020 2021 2022
Advanced Economies -4.9 4.3 3.1
US -3.4 5.1 2.5
Euro Area -7.2 4.2 3.6
Germany -5.4 3.5 3.1
France -9.0 5.5 4.1
Italy -9.2 3.0 3.6
Spain -11.1 5.9 4.7
UK -10.0 4.5 5.0
Japan -5.1 3.1 2.4
Canada -5.5 3.6 4.1
Emerging Markets and Developing Economies -2.4 6.3 5.0
China 2.3 8.1 5.6
India -8.0 11.5 6.8
Russia -3.6 3.0 3.9
Brazil -4.5 3.6 2.6
South Africa -7.5 2.8 1.4
Nigeria -3.2 1.5 2.5
Saudi Arabia -3.9 2.6 4.0
ICBC Standard Bank |
PU
BLIC
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
20
17
-Dec
20
18
-Mar
20
18
-Ju
n
20
18
-Sep
20
18
-Dec
20
19
-Mar
20
19
-Ju
n
20
19
-Sep
20
19
-Dec
20
20
-Mar
20
20
-Ju
n
20
20
-Sep
20
20
-Dec
FAI (3m mov. Avg.) Retail Sales (3m mov. Avg.)
IP (3m mov. Avg.) Quarterly GDP Growth (yoy %, RHS)
6.9% 6.9% 6.7% 6.5% 6.4% 6.2% 6.0% 6.0%
-6.8%
3.2%
4.9%
6.5%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Net Exports Investment
Contribution to real GDP Growth % Consumption Quarterly GDP Growth ( yoy %, constant price)
Solid growth recovery in Q4 exceeded the pre-pandemic output level
7
China Macro Outlook
China’s economy expanded by 6.5% yoy in Q4 vs. 4.9.% in Q3
Source: WIND, ICBC Standard
But the recovery was unbalanced and heavily relied on public support
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
8.0%
-20.5%
-19.0%
-16.2%
-13.5%
-11.4%
-9.9% -8.6%
-7.2% -5.9%
-4.8% -3.9%
6.1%
-6.8%
-1.6%
0.7% 2.3%
-6.8%
3.2%
4.9% 6.5%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Jan - Dec2019
Jan - Feb2020
Jan - Mar2020
Jan - Apr2020
Jan - May2020
Jan - Jun2020
Jan - Jul2020
Jan - Aug2020
Jan - Sep2020
Jan - Oct2020
Jan - Nov2020
Jan - Dec2020
Retail Sales (YTD yoy) Fixed Asset Investment (YTD yoy) Industrial Production (YTD yoy) GDP (YTD yoy) Quarterly GDP (yoy)
But consumption remained as a growth laggard throughout 2020
8
China Macro Outlook
Retail sales failed to catch up with supply-side recovery in 2020 and is facing renewed lockdown challenges to reverse the declining trend
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Industrial Production (yoy %) IP - Manufacturing
IP - SOEs IP - Private Enterprises
Strong supply-side recovery started to show early signs of plateauing
9
China Macro Outlook
PMI began to moderate from post-lockdown high towards year-end
Source: WIND, ICBC Standard
Manufacturing and private firms led the supply-side recovery
Source: WIND, ICBC Standard
35
40
45
50
55
60
35
40
45
50
55
60
Official Manufacturing PMI Caixin Manufacturing PMI
ICBC Standard Bank |
PU
BLIC
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20
19
-Se
p
20
19
-Oct
20
19
-No
v
20
19
-De
c
20
20
-Ja
n
20
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-Fe
b
20
20
-Ma
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20
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-Ap
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20
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-Ma
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20
20
-Ju
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20
20
-Ju
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20
20
-Au
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20
20
-Se
p
20
20
-Oct
20
20
-No
v
20
20
-De
c
FAI YTD (yoy %) FAI - Real Estate FAI - Manufacturing FAI - Infrastructure
Property and infrastructure-led investment rebound is slowing down
10
China Macro Outlook
YTD FAI resumed positive growth in September but the rebound was primarily led by real estate and infrastructure investment
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
-40%
-30%
-20%
-10%
0%
10%
20%
(yoy %, YTD)
US EU ASEAN Africa LATAM
-40%
-20%
0%
20%
40%
60%
80%
100%
-40
-20
0
20
40
60
80
100
Current Account (USD bn, LHS) Exports (% yoy)
Imports (% yoy)
Exports benefited from unexpected demand for pandemic-related goods
China Macro Outlook
11
Q4 trade growth was gained by taking a greater share of global
exports, which also boosted current account surplus to record highs
Source: WIND, ICBC Standard
Notable pick up in exports to US further aided exports rebound in Q4
led by ASEAN and the EU in (YTD exports, yoy %)
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
Consumption faces fresh lockdown pressure despite notable Q4 rebound
12
China Macro Outlook
Monthly growth momentum in retail sales began to gather pace
since Sep. led by pick-up in auto sales and consumer goods
Source: WIND, ICBC Standard
But e-Commerce has been indispensable in driving the recovery of
retail sales as other segments all remained negative in YTD terms
Source: WIND, ICBC Standard
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
20
19
-Se
p
20
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-Oct
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-No
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-De
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-Ja
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-Fe
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-Ma
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-Ap
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-Ju
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20
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-Au
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20
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-Se
p
20
20
-Oct
20
20
-No
v
20
20
-De
c
Retail Sales - Restaurants Retail Sales - Goods
Retail Sales - Cars Retail Sales (yoy %)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Retail Sales YTD (yoy %) Retail Sales - Goods
Retail Sales - Restaurants Retail Sales - Online sales
Retail Sales - Auto
ICBC Standard Bank |
PU
BLIC
-15%
-10%
-5%
0%
5%
10%
15%
-10%
-5%
0%
5%
10%
15%
20
18
-Ja
n
20
18
-Ap
r
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-Ju
l
20
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-Oct
20
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-Ja
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20
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-Ap
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20
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-Ju
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20
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-Oct
20
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-Ja
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20
20
-Ap
r
20
20
-Ju
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20
20
-Oct
20
21
-Ja
n
PPI Consumer Durable Goods
Manufactured Industrial Input Raw Materials
Inflation divergence reflects weaker recovery momentum in consumption
13
China Macro Outlook
Core CPI remained below 1.0% in Q4 and further dipped into
deflation territory due to high base effect
Source: WIND, ICBC Standard
Factory deflationary pressure finally reversed the trend in Jan 2021
supported by rising commodity prices
Source: WIND, ICBC Standard
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Headline CPI Core CPI (excl food & energy) Non-food CPI
ICBC Standard Bank |
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0%
5%
10%
15%
20%
25%
30%
35%
-
1,000
2,000
3,000
4,000
5,000
6,000
20
10
-De
c
20
11
-Ju
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20
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-De
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20
12
-Ju
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20
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-De
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20
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-Ju
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20
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-De
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20
14
-Ju
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20
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-De
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20
15
-Ju
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20
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-De
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20
16
-Ju
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20
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-De
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20
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-Ju
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20
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-De
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20
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-Ju
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20
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-De
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20
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-Ju
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20
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-De
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20
20
-Ju
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20
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-De
c
New Loan (CNY bn) Total Social Financing (CNY bn)
M2 (yoy %)
PBoC may gradually shift away from its highly accommodative credit policy
14
China Macro Outlook
Q2-Q3 2020 saw the highest pace of credit expansion since GFC
with considerable growth of bank lending and total social financing
Source: WIND, ICBC Standard
Double-digit growth in broad social credit since March began to
show signs of moderation towards year-end
Source: WIND, ICBC Standard
11.1%
10.1%
13.7%
13.3% 13.2%
12.8%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20
16
-Se
p
20
16
-De
c
20
17
-Ma
r
20
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-Ju
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20
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-Se
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20
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20
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20
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-Ma
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-Se
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-De
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M2 yoy % Total Social Financing yoy %
Core Bank Lending yoy %
ICBC Standard Bank |
PU
BLIC
-2
-1
0
1
2
3
4
-10%
-5%
0%
5%
10%
15%
20%
Financial Condition Index (RHS) GDP Growth (yoy %, LHS) M2 Growth (yoy %, LHS) Total Social Financing (yoy %, LHS)
…with extra caution against risks of re-inflating asset bubbles
15
China Macro Outlook
Looser Financial
Conditions
Deleveraging Cycle
Financial conditions marginally tightened since June as regulatory tone shifted towards curtailing speculative investments
Source: WIND, ICBC Standard
Note: Negative reading of Caixin Financial Condition Index reflects loose financial condition, and positive reading means tighter financial condition in the onshore China market.
ICBC Standard Bank |
PU
BLIC
Ultra-proactive fiscal policy is likely to be normalised at the NPC meeting
16
China Macro Outlook
Over CNY 4.5tn of local government bonds new issuance in 2020 dwarfs records in the past ten years
Source: WIND, ICBC Standard
Note: * NPC meeting in May has approved CNY 3.75tn worth of special purpose bond quota for 2020. By the end of H1 2020, more than CNY 2.37tn worth of special purpose bond have
already been issued, accounting for nearly 65% of the annual quota.
0
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(CNY bn)
General Local Government Bond Special Purpose Bond
CNY 4.5tn new local government bond
issuance in 2020 marks 1.5 times of
the CNY 3.0tn record in 2019
ICBC Standard Bank |
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2.20%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
20
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20
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-Ja
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-Ma
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Overnight SHIBOR rate (%) 7-day Reverse Repo rate (%)
Front-end interbank rates saw heightened volatility in Jan-2021…
17
China Macro Outlook
Overnight and 7-day rates went through volatile movements in Jan, but PBoC remained determined to hold 7-day OMO rates unchanged
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
…leading to notable movements of CGB yields across different tenors
18
China Macro Outlook
Yield of 1yr CGB notably bounced back in Jan 2021 due to front-end
liquidity squeeze in the interbank system
Source: WIND, ICBC Standard
Yet CGB yields are likely to remain range bound in the near term as
markets await further policy clarities after the Chinese New Year
Source: Bloomberg, ICBC Standard
0
20
40
60
80
100
120
5yr-10yr CGB spread (bps) 3yr-10yr CGB spread (bps)
1yr CGB, 2021-01-13,
2.16%
1yr CGB 2.66%
3yr CGB 2.88%
5yr CGB 3.08%
10yr CGB 3.22%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
2020-Nov-01 2020-Dec-01 2021-Jan-01 2021-Feb-01
1yr CGB YTM 3yr CGB YTM 5yr CGB YTM 10yr CGB YTM
ICBC Standard Bank |
PU
BLIC
2.95%
3.85%
4.65%
1.50%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
20
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MLF (1-yr, %) 1-yr LPR 5-yr LPR 1-yr benchmark deposit rate
But PBoC is determined to hold policy rates and absorb excessive liquidity
19
China Macro Outlook
Longer-term benchmark rates remain unchanged since last May and are likely to remain so for longer as near-term rate hike highly unlikely
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
PBoC balance sheet expansion is very timid compared to peers…
20
China Macro Outlook
Balance sheet growth of major central banks (monthly, USD tn)
Source: WIND, ICBC Standard
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
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(USD tn) (USD tn)
Bank of Japan Federal Reserve European Central Bank PBoC
ICBC Standard Bank |
PU
BLIC
… while rate differentials between China and US remain significant
21
China Macro Outlook
Yield spread between China-US 10yr government bond remains at above 200bps
Source: WIND, ICBC Standard
6.0
6.2
6.4
6.6
6.8
7.0
7.2
7.4
0
50
100
150
200
250
300
2014-Jan 2015-Jan 2016-Jan 2017-Jan 2018-Jan 2019-Jan 2020-Jan 2021-Jan
China-US 10yr Yield Spread (RHS) USD-CNY Spot Rate (LHS)
ICBC Standard Bank |
PU
BLIC
87
89
91
93
95
97
99
101
103
105
6.2
6.4
6.6
6.8
7.0
7.2
7.4
USDCNY (LHS) USDCNH (LHS) Dollar Index (RHS)
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
7.3
7.4
CNH-CNY Spread (RHS) USDCNY USDCNH
Dollar weakness and macro-recovery continue to support the yuan
22
China Macro Outlook
Yuan has appreciated by more than 8% against USD in H2-2020
Source: WIND, ICBC Standard
Persistent dollar weakness supported extended yuan rally
Source: Bloomberg, ICBC Standard
ICBC Standard Bank |
PU
BLIC
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
7.3
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
7.3
USDCNY USDCNH
Yuan’s two-way fluctuation and balanced capital flows to be key focuses
23
China Macro Outlook
Recent yuan rally may have limited strength to break record lows
Source: WIND, ICBC Standard
PBoC markedly reduced dollar weighting in the CFETS RMB Index
Top 15 basket currencies in the CFETS RMB Index
Source: CFETS, ICBC Standard
Currency
New Weighting
(Jan 2021 -
present)
Old Weighting
(Jan 2020 -Dec
2020)
Old Weighting
(Jan 2017 - Dec
2019)
Weighting
Change
(Present vs
2020)
USD 18.79% 21.59% 22.40% ↓ -2.80%
EUR 18.15% 17.40% 16.34% ↑ 0.75%
JPY 10.93% 11.16% 11.53% ↓ -0.23%
KRW 9.88% 10.68% 10.77% ↓ -0.80%
AUD 5.89% 5.20% 4.40% ↑ 0.69%
MYR 4.31% 3.70% 3.75% ↑ 0.61%
RUB 3.85% 3.65% 2.63% ↑ 0.20%
HKD 3.59% 3.57% 4.28% ↑ 0.02%
THB 3.19% 2.98% 2.91% ↑ 0.21%
SGD 3.12% 2.82% 3.21% ↑ 0.30%
GBP 3.00% 2.75% 3.16% ↑ 0.25%
SAR 2.71% 2.16% 1.99% ↑ 0.55%
CAD 2.26% 2.17% 2.15% ↑ 0.09%
MXN 2.11% 1.98% 1.69% ↑ 0.13%
AED 1.69% 1.57% 1.87% ↑ 0.12%
ICBC Standard Bank |
PU
BLIC
Appendix I: Market awaits further policy clarity at the March NPC meeting
Key economic targets in the past Government Work Reports (2018 – 2020)
24
China Macro Outlook
2020 2019 2018
GDP
GDP Target (%) “Endeavour to achieve the 13th FYP target” 6.0% - 6.5% 6.50%
Actual GDP (CNY bn) -- 99,086.50 91,928.11
Previous GDP growth rate (yoy %) 6.10% 6.70% 6.90%
Fiscal
Official Fiscal Deficit (CNY bn) 3,760 ↑ 2,760 2,380
Official Fiscal Deficit Ratio (% GDP) > 3.6% ↑ 2.8% 2.6%
Special Bond Quota (CNY bn) 3,750 ↑ 2,150 1,350
Special Bond Quota (% GDP) 3.75% ↑ 2.18% 1.47%
Special Sovereign Bond (CNY bn) 1,000 ↑ NA NA
Broad Fiscal Deficit Ratio (% GDP) > 8.5% ↑ 5.0% 4.1%
Railway Infra-Investment (CNY bn) 900 ↑ 800 732
Road and Water Transport Infra-
Investment (CNY bn) NA - 1,800 1,800
Tax Cuts (CNY bn) 2,500 ↑ 2,000 1,100
Social
Household Disposable Income Growth
(yoy %) "Same as nominal GDP
growth rate" =
"Same as nominal
GDP growth rate" 6.5%
Urban New Job Creation (mn) 9.0 ↓ 11.0 11.0
Unemployment Rate (%) 6.0% ↑ 5.5% 5.5%
Poverty Reduction (mn) 10 estimated
(“Eliminate extreme poverty”) = 10 10
Monetary
CPI (%) 3.5% ↑ 3.0% 3.0%
New Loan Growth for SMEs (%) > 40% ↑ 30% --
M2 (yoy %) “Markedly higher than
2019” ↑
"Same as nominal
GDP growth rate" "Reasonabl
e growth" Total Social Financing (yoy %)
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
Appendix II (a): Phase-One deal remains incomplete
25
China Macro Outlook
China has accelerated manufactured goods purchasing from the US since May, but the actual Phase-One purchase of goods across
agricultural, manufactured and energy sectors all missed the targets by the end of 2020.
Source: PIIE, ICBC Standard
0.4 0.9
4.0 4.5
16.7
4.8 3.9 4.2
10.6 9.8
8.7
21.6
17.5
18.9
9.1
0
5
10
15
20
25
2017
(Quarterly avg)
2018
(Quarterly avg)
2019
(Quarterly avg)
2020 Q1
(Acutal)
2020 Q2
(Actual)
2020 Q3
(Actual)
2020 Q4
(Actual)
Outstanding
Commitment
(USD bn)
Energy goods Agricultural Goods Manufactured Goods
ICBC Standard Bank |
PU
BLIC
Purchase Commitments
Actual Purchases
Purchase Commitments
Actual Purchases
Purchase Commitments
Actual Purchases
Appendix II (b): Shortfall of the Phase One deal might be too big to ignore
China Macro Outlook
26
By the end of 2020, China has purchase $100bn worth of goods from US, yet still only accounted for less than 60% of the Phase One target
Source: PIIE, ICBC Standard
Actual Purchases
100.0
Purchase Commitments
169.5
0
30
60
90
120
150
180
2020 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020 Dec
(USD bn)
66.7
110.8
0
20
40
60
80
100
120
20
20
Ja
n
20
20
Fe
b
20
20
Ma
r
20
20
Ap
r
20
20
Ma
y
20
20
Ju
n
20
20
Ju
l
20
20
Au
g
20
20
Se
p
20
20
Oct
20
20
No
v
20
20
De
c
Manufactured Goods
19.4
33.4
0
10
20
30
40
20
20
Ja
n
20
20
Fe
b
20
20
Ma
r
20
20
Ap
r
20
20
Ma
y
20
20
Ju
n
20
20
Ju
l
20
20
Au
g
20
20
Se
p
20
20
Oct
20
20
No
v
20
20
De
c($bn) Agriculture
9.8
25.3
0
5
10
15
20
25
30
20
20
Ja
n
20
20
Fe
b
20
20
Ma
r
20
20
Ap
r
20
20
Ma
y
20
20
Ju
n
20
20
Ju
l
20
20
Au
g
20
20
Se
p
20
20
Oct
20
20
No
v
20
20
De
c
Energy
ICBC Standard Bank |
PU
BLIC
Appendix III: “Six guarantees” have been Beijing’s top policy priorities in 2020
27
China Macro Outlook
Timeline Policy Measures since end-March (see Appendix for previous measures) Fiscal
Policy
Monetary
Policy
Mar.27
(Politburo
meeting)
A key Politburo meeting marked Beijing proposal to increase its fiscal deficit to 3.5% as a share of GDP (from a
de-facto 3% ceiling), issue special sovereign debt and allow local governments to sell more infrastructure bonds as
part of a package to stabilise the economy. The ramped-up spending on infrastructure investment could be backed
by as much as CNY 2.5-2.8 trillion worth of local government special bonds. Beijing is also likely to have to lower
its economic growth target for 2020, down from the original target of around 6% agreed in December 2019.
Y
Mar.30 The PBOC reduces the interest rate on 7-day reverse repurchase agreements to 2.2% from 2.4% while injecting CNY
50 billion into the banking system. The rate cut was the largest of its sort since 2015. Y
Mar. 31
The State Council called for lower reserve-requirement ratios for smaller banks, more infrastructure bond issuances
by local governments, and other steps including tax exemptions on new-energy vehicle purchases. A State Council
meeting pledged another 1 trillion CNY of funding through the central bank’s relending and rediscounting
program, a cheaper credit line for small commercial lenders.
Y Y
Apr. 3
(Politburo
meeting)
Politburo leaders in a statement pledged a raft of measures to strengthen the role of the market in land use,
capital markets and labour mobility to build a more efficient economy. The Politburo also called for improvements
to the country’s stock market infrastructure, faster development of the bond market and actively expanding
financial-sector opening., and interest rates reform.
Y
PBoC announced cut of targeted Reserve Ratio Requirement (RRR) for smaller banks by 1.0 percentage points in
two phases. The targeted RRR cut will release around CNY 400 billion into the banking system. Y
Apr. 17
(Politburo
meeting)
The Politburo for the first time put forward the goal of "six guarantees (六保)”, which includes ensuring residents’
employment, a basic livelihood and market participation, food and energy security, supply chain stability, and
grassroots operations. ‘Full-employment and undisrupted functioning of social fabrics‘ as well as ‘people’s
livelihoods‘ have been identified as top priority by the government.
Y
Apr. 17-20
PBoC cut MLF rate by 20bps to 2.95% from 3.15%, the lowest since 2017, and injected CNY 100bn via 7-day repo.
The one-year LPR was subsequently lowered to 3.85% from 4.05%, and the five-year tenor dropped by 10bps to
4.65% down from 4.75%.
Y
Apr. 20
MoF approved another CNY 1tn quota for special purpose bonds to be placed by end-May. NDRC outlined the five-
year “New Infrastructure investment plan” worth CNY 10tn from 2020. 24 provinces have submitted CNY 8tn
worth of infrastructure investment projects for 2020 so far (see next slide).
Y
Apr. 21 State Council lowered the bad-loan coverage ratio for medium-small sized banks by 20 bps in phases, to unleash
additional credit to support small and micro-sized businesses. Y
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
Appendix IV: China’s COVID-19 emergency relief policy package (Feb-Mar)
28
China Macro Outlook
Timeline Policy Measures Fiscal
Policy
Monetary
Policy Feb. 1 Import tariffs exemption for medical materials used in epidemic control until March 31.
Y
PBoC strengthened countercyclical adjustments of monetary policy through open market operations. Together with
other financial regulators, the PBoC rolled out 30 policy measures to support enterprises. Y
Feb. 3-4 PBoC added a net CNY 150bn liquidity to the interbank market. The total injection announced was CNY 1.6tn, the
largest single-day addition of its kind since 2004. Y
Feb. 5 State Council announced support for debt financing and insurance for virus-impacted firms, and allowed local
government to sell another CNY 848bn of bonds before March. Y
Feb. 6 PBoC issued credit support for enterprises heavily affected by the epidemic (small and micro companies and key
manufacturing sectors) to borrow at record-low rate of 1.6% through state-owned commercial banks. PBoC also
provided CNY 300bn for large banks and selected local banks in Hubei and other severely-hit provinces. Y
Feb. 9
State Council announced total spending worth CNY 80.55bn as emergency funds to mitigate against COVID-19
related shocks to the economy. Y
Feb. 15 Various tax relief measures worth CNY 1tn (or about 1% of GDP), including reductions in employers' required
social insurance payments, lower electricity fees and VAT waivers. Y
Feb. 17-20 PBoC lowered MLF rate by 10bps to 3.15% from 3.25%, the lowest since 2017, and injected CNY 100bn via 7-day
repo. PBoC lowered the benchmark borrowing costs for new corporate and household loans. The one-year LPR was
lowered to 4.05% from 4.15%, and the five-year tenor was lowered to 4.75% down from 4.8%. Y
Mar. 4 7 provinces announced investment projects worth CNY 25tn with CNY 3.5tn to be fully allocated within 2020 Y
Mar. 12-13 PBoC allows a higher cap of 1.25 on foreign debt, a move aimed at helping smaller and private companies raise
more funds overseas. PBoC also cut Reserve Requirement Ratio (RRR) by 0.5 - 1.0 percentage points for banks,
freeing up an additional CNY 550bn liquidity to the interbank market to help virus-impacted companies. The RRR
for large banks is currently 12.5%. Qualified joint-stock commercial banks would enjoy an additional cut of 100 bps.
Y
Source: WIND, ICBC Standard
ICBC Standard Bank |
PU
BLIC
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29
China Macro Outlook
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