China Economics | 25th Feb.

2021

CHINA CHART BOOK

Defaults by state firms surge
• Incoming data continue to point to strength in domestic activity, spending and revenues. Yet strains in
China’s corporate bond market continue to grow, with the value of defaults hitting all-time highs. (See Chart
1.) This underlines the degree to which credit risk in China hinges on shifts in the policy stance rather than
fundamentals. Defaults, particularly by state-owned firms, happen when policymakers allow them to, and
there have been more defaults by state firms over the past six months than by private firms. That’s never
happened before. This campaign to instil more discipline in credit markets will continue as long as
policymakers remain confident about the economic backdrop.

• Coronavirus infections have remained low since the flare-up in January was successfully contained.

• Output & activity indicators point to robust growth at the end of 2020.
• Consumer spending ended 2020 on a strong footing thanks to a tightening labour market.

• Business indicators show that supply constraints are limiting further expansion in industry.

• Property indicators suggest that tighter restrictions are starting to weigh on underlying demand.
• External indicators suggest recent strength in exports may be levelling off.

• Inflation indicators show that producer price inflation turned positive for the first time since the pandemic.

• Monetary indicators suggest that the PBOC is turning more hawkish which is weighing on credit growth.

• Financial markets have been volatile though the renminbi has strengthened.

• Hong Kong indicators show that the recovery taken a step back due to the latest containment measures.

Chart 1: Onshore Corporate Bond Defaults (12m sum, % of outstanding bonds)

5.0 5.0
Latest = 23rd Feb.

4.0 4.0

3.0 3.0

2.0 2.0

1.0 1.0

0.0 0.0
2014 2015 2016 2017 2018 2019 2020 2021

Sources: CEIC, Capital Economics

Mark Williams, Chief Asia Economist, mark.williams@capitaleconomics.com

Sheana Yue, Assistant Economist, sheana.yue@capitaleconomics.com
China Chart Book Page 1
 China Economics

Coronavirus
• January’s surge in infections has been quashed (2) after authorities successfully contained virus flare-ups
in the north-eastern provinces of Hebei, Heilongjiang and Jilin. New confirmed cases are again now almost
entirely in people arriving from abroad rather than people who have contracted the virus in China (3).
• The campaign to discourage workers from returning to their hometowns during the Spring Festival has
been successful. Long-distance travel was running at about 30% of the level ahead of Lunar New Year in
2020 (which was just before the original lockdown began) (4). Long distance travel aside, there are few
signs of major disruption to day-to-day life. Road congestion and subway usage are only modestly below
2019 levels, even in Hebei’s capital Shijiazhuang which imposed a lockdown in January (5). Cinema ticket
sales set a new record for the Lunar New Year period despite capacity restrictions (6).
• While less pressing in China than elsewhere, vaccines are still needed if China is to reopen its borders and
allow unfettered travel. China had administered 40.5 million doses as of 9th February, which was not too
far off the original official target (since pushed back to March) to inoculate 50 million by the Lunar New
Year holiday (7). But that is still a small fraction of the population.

Chart 2: New Confirmed COVID-19 Cases in China Chart 3: New COVID-19 Cases in China*
300 300
250 250
Asymptomatic Domestic spread
250 Symptomatic 250 Infection in arrivals from abroad
Total 200 200
200 200 *Includes
asymptomatic cases
150 150
150 150

100 100
100 100

50 50 50 50

0 0 0 0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Chart 4: Long-Distance Passengers (million) Chart 5: Transport Activity (% of 2019 level, 7d ave.)
250 % of 2020 level 250 160 160

% of 2019 level 140 140

200 200
120 120
150 150 100 100

80 80
100 100
60 60
50 50
40 40
Congestion across Shijiazhuang
0 0 20 Congestion across 100 cities 20
15 days 10 days 5 days Lunar 5 days 10 days 15 days Subway passengers in nine major cities
0 0
before before before NY Day after after after
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21

Chart 6: Cinema Ticket Sales (% of 2019 level, 7d ave.) Chart 7: Total Coronavirus Vaccine Doses Administered
(million)
200 200 60 60
Original target of administering ... now delayed
50m doses by Lunar New Year... to end-March
50 50
150 150
40 40

100 100 30 30

20 20
50 50
10 10

0 0 0 0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 15-Dec 15-Jan 15-Feb 15-Mar

Sources: CEIC, WIND, MOT, OurWorldInData, Capital Economics

China Chart Book Page 2

 China Economics

Output & Activity

• The monthly cycle of data releases is always interrupted around the Lunar New Year, with most high-
profile series not available for a month.

• Both official GDP and our in-house measure, the China Activity Proxy (CAP), pointed to the fastest year-
on-year expansion of China’s economy in at least two years last quarter (8). Industry and construction
remained the strongest sectors, but services activity has now returned to its pre-virus trend too (9). The
CAP suggests that growth dropped back in December but that it remained elevated. This slight loss of
momentum is also evident in the key official monthly indicators, especially fixed investment (10).

• The most pronounced economic tailwind remains strong foreign demand for Chinese goods thanks to a
shift in global consumption patterns that is persisting due to renewed virus flare-ups. As a result, seaport
container traffic has seen a swifter and stronger rebound than domestic freight traffic, though the latter is
now catching up thanks to domestic stimulus (11). This has helped to boost industrial activity. Both the
official figures on industrial value-added and our own index of industrial output, which is based on the
output volumes of individual products, finished 2020 on a strong note (12). Service sector activity remains
more uneven but was above the pre-virus level across the board last quarter (13).

Chart 8: GDP & CE China Activity Proxy (% y/y) Chart 9: CAP – Sector Proxies (3m % y/y)
Construction Proxy
20 CE China Activity Proxy (latest = Dec.) 20 15 Industry Proxy 15
Official GDP (latest = Q4) Services Proxy
15 15
10 10
10 10
5 5
5 5

0 0 0 0
-5 -5
-5 -5
-10 -10
-10 -26% in Q1 -10
-15 -15
Jan. & Feb. data averaged
-20 -20 -15 -15
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 13 14 15 16 17 18 19 20 21

Chart 10: Activity & Spending (% y/y) Chart 11: Freight & Seaport Traffic (% 3m y/y)
15 15 25 25
Seaport Container Throughput (TEU)
10 10 20 20
Freight Turnover (ton-km)
5 5 15 15
0 0
10 10
-5 Industrial Output -5
5 5
-10 Fixed Investment -10
Services Output 0 0
-15 Retail Sales -15
-5 -5
-20 -20
-25 Note: Jan. & Feb. data are -25 -10 -10
published as a single figure
-30 -30 -15 -15
Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Chart 12: Industrial Value Added & Output (3m % y/y) Chart 13: GDP by Sector (2020, % y/y)
-40 -30 -20 -10 0 10 20
15 Industrial Value-added 15
Leasing & Commercial Services
12 CE Industrial Output Index 12 Hospitality
Agriculture
9 9 Q1
Other
6 6 Retail & Wholesale Q2
3 3 Construction
Q3
Real Estate
0 0
Industry Q4
-3 -3 Finance
-6 -6 Transport, Storage & Post
Telecommunications & IT
-9 -9
11 12 13 14 15 16 17 18 19 20 21 -40 -30 -20 -10 0 10 20 30

Sources: CEIC, Wind, Capital Economics

China Chart Book Page 3

 China Economics

Consumer Spending
• Consumer spending initially lagged the broader economic rebound. In particular, social distancing rules
weighed on demand for services last year, especially entertainment and transport (14). But consumption
has strengthened markedly in recent months. Growth in car and property sales remain rapid after a sharp
rebound (15). And retail sales continued to accelerate in December, with online sales still buoyant (16).

• A tightening labour market has been the main tailwind. Official data show that migrants, who make up a
third of the urban workforce and suffered the bulk of the job losses in the first quarter, had mostly resumed
employment in urban areas by the end of Q3. And the surveyed unemployment rate (which excludes
migrants) has now returned to its pre-virus level (17).
• With the labour market largely back to normal, income growth is rebounding (18) which is boosting
consumer confidence (19). With concerns over job prospects easing, households have started to reverse
the surge in their savings rate early last year.

Chart 14: Change in Household Consumption Share Chart 15: Car & Property Sales (3m % y/y)
(%-pts, 2020 versus 2019)
50 50
-3 -2 -1 0 1 2 Property Sales
Car Sales
Education & entertainment
25 25
Clothing
Other
Transport & telecommunications 0 0
Healthcare
Household goods & services
-25 -25
Housing
Food, Beverage & Tobacco
-50 -50
-3 -2 -1 0 1 2
12 13 14 15 16 17 18 19 20 21

Chart 16: Retail Sales (3m %y/y, RMB) Chart 17: Savings Rate & Unemployment Rate (%)
40 40 36 6.0
Total Retail Sales Household savings rate (LHS)
30 Online 30 Surveyed unemployment rate (RHS) 5.8
34
20 20 5.6
32 5.4
10 10
30 5.2
0 0
5.0
28
-10 -10 4.8
January & February
are averaged
-20 -20 26 4.6
16 17 18 19 20 21 2014 2015 2016 2017 2018 2019 2020 2021

Chart 18: Household Income (RMB, % y/y) Chart 19: NBS Consumer Confidence Index
130 130
25 25
Rural
Urban
20 20 125 125

15 15
120 120
10 10

115 115
5 5

0 0 110 110
10 11 12 13 14 15 16 17 18 19 20 21 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

Sources: CEIC, Wind, Capital Economics

China Chart Book Page 4

 China Economics

Business
• The manufacturing PMIs continued to drop back at the start of 2021 (20), suggesting that the pace of m/m
expansion in industry is easing. This appears mostly to reflect supply constraints rather than a slowdown
in demand. Firms were reporting the longest delivery times since factories were closed last March which
is not entirely surprising given that industry capacity utilisation rates hit an eight-year high in Q4 (21). The
services PMIs also fell, likely due to renewed virus flare-ups across several provinces which weighed on
services activity last month. The construction PMI remains elevated.

• Business indicators in industry continue to improve. Revenue growth has returned to its pre-virus trend
and profit growth remains robust (22). Surveys suggest that profit growth remained strong in February even
among SMEs (23), which were hardest hit by the COVID-19 downturn.

• Inventory turnover and cashflows continue to improve. The payback time on accounts receivables has
dropped back to more normal levels (24). Although still elevated, the share of firms that are loss-making
has reversed the surge last year and is back to the 2019 level (25).

Chart 20: China PMIs Chart 21: Industry Capacity Utilisation Rate (%)
65 65 84 84

60 60 82 82
80 80
55 55
78 78
50 50 Long-run average
76 76
45 Manufacturing PMIs (Official 45
74 74
& Caixin simple average)
40 40 72 72
Service PMIs (Official &
35 Caixin simple average) 35 70 70
Official construction PMI 68 68
30 30
66 66
25 25
92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

Chart 22: Industrial Profits, Revenues & Inventories Chart 23: Business Surveys – Profitability
(3m % y/y)
40 40 100 Standard Chartered SME Index - Profitability 100

30 30 CKGSB Index - Profitability

80 80
20 20 Profit growing
10 10
60 60
0 0

-10 -10 40 40

-20 -20 Profit slowing

Finished goods inventories
Profit 20 20
-30 -30
Revenue
-40 -40 0 0
15 16 17 18 19 20 21 13 14 15 16 17 18 19 20 21

Chart 24: Industrial Firms - Chart 25: Loss-making Share of Industrial Firms
Inventory & Accounts Receivable Turnover (Days) (%, seas. adj.)
Product Inventory Turnover (LHS)
30 80 40 40
Account Receivable Payback (RHS)

60 30 30
20

40 20 20

10
20 10 10

0 0 0 0
15 16 17 18 19 20 21 99 02 05 08 11 14 17 20
Sources: CEIC, Wind, Markit, Bloomberg, Capital Economics

China Chart Book Page 5

 China Economics

Property
• Daily data suggest that property sales remained buoyant at the start of 2021 after a strong rebound from
the sharp downturn in Q1 last year (26). But this recent strength partly reflects a rush among developers
to offload units at discounted prices to shore up their cashflows (27).
• Property controls have been tightened recently. New limits to halt the upward trend in bank lending to the
property sector came into force at the start of this year (28). Although this will primarily curtail the
availability of mortgages, it also adds to the headwinds facing developers, many of whom were already hit
with limits to their borrowing last year. Prior to the latest regulation, some cities had raised down-payment
requirements or introduced new curbs and regulators leant against declines in mortgage rates (29).
Mortgage rates remain unusually high relative to average bank lending rates, which suggests authorities
are unwilling to loosen their tight grip on the sector (30).

• With property controls weighing on demand and access to credit being curtailed, developers have turned
more cautious and pared back land purchases (26) and new housing starts (31). This will most likely feed
through to slower property investment over the coming quarters.

Chart 26: Real Estate Activity (vol., % of 2019) Chart 27: New Home Prices (% m/m, 70 city ave.)
75 75 1.8 1.8

50 50 1.5 1.5

25 25
1.2 1.2
0 0
0.9 0.9
-25 -25
0.6 0.6
-50 -50
Land Transactions (4w ave)
-75 -75 0.3 0.3
Property Sales (30d ave)

-100 -100 0.0 0.0

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 16 17 18 19 20 21

Chart 28: Property Loans (% of bank loans) Chart 29: Mortgage Rates
& Down-payment Requirements (%)
30 Real estate development 30 Average down-payment required for
52 7.5
Residential mortgages 2nd home (latest=Dec., LHS)
25 25 50 Average mortgage rate on 1st home 7.0
48 (latest=Jan., RHS)
20 20 6.5
46
44 6.0
15 15
42 5.5
10 10 40
5.0
5 5 38
4.5
36
0 0 34 4.0
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 14 15 16 17 18 19 20 21

Chart 30: Mortgage Rate minus Lending Rate Chart 31: Property Starts & Investment (3m % y/y)
(Basis Points, latest = Q4)
60 60 40 Floor space started 40
Mortgages more expensive than average loan
40 Tighter regulatory stance 40 Property investment
30 30
20 20
20 20
0 0
-20 -20 10 10
-40 -40 0 0
-60 -60
-10 -10
-80 -80
-100 Mortgages cheaper than average loan -100 -20 -20
Looser regulatory stance
-120 -120 -30 -30
09 10 11 12 13 14 15 16 17 18 19 20 21 11 12 13 14 15 16 17 18 19 20 21

Sources: CEIC, Refinitiv, Wind, Rong360, Capital Economics

China Chart Book Page 6

 China Economics

External Trade
• Export and import volumes have remained near record highs in recent months (32). The jump in outbound
shipments has been strongest in electronics, furniture and recreational goods – all in high demand due to
lockdowns overseas (33).
• The initial rebound in imports was mainly driven by industrial commodities as infrastructure stimulus
kicked in, along with opportunistic stockpiling of oil following the slump in prices last spring. But more
recently, the pick-up has been led by imports of agricultural goods and electronic components (34).
• China’s share of world exports took a step higher last year (35). China’s trade surplus, even after adjusting
for seasonality, ended 2020 at record levels (36). This is unlikely to be sustained. Consumption patterns
overseas should gradually return to normal as vaccines are rolled out. In fact, the export orders component
of the January manufacturing PMIs fell below 50 for the first time since July, which suggests that the recent
strength in exports may be levelling off (37). Imports should continue to rise but at a slower pace as policy
support is withdrawn throughout this year.

Chart 32: Goods Trade Volumes Chart 33: Exports ($, Dec. 19 = 100, seas. adj.)
($bn, seas. adj., 2004 prices)
225 225 160 Furniture, toys & plastic goods 160
Exports Electronics (incl. home appliances)
200 Imports 200 Textiles, garments, bags & footwear (incl. face masks)
Other goods
175 175
130 130
150 150

125 125
100 100
100 100

75 75

50 50 70 70
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 2018 2019 2020 2021

Chart 34: Import Volumes (100 = Dec. 2019, seas. adj.) Chart 35: China’s Goods Exports
(% of world total, 2010 prices, 3m sum)
14 14
140 Grains (incl. soybeans) 140
Integrated ciruits 12 12
Oil
120 Industrial metals (iron ore, copper, steel) 120 10 10

8 8
100 100
6 6

4 4
80 80
2 2

60 60 0 0
2018 2019 2020 2021 00 02 04 06 08 10 12 14 16 18 20

Chart 36: Goods Trade Surplus ($bn, seas. adj.) Chart 37: Exports and PMIs – New Export Orders
70 70 60 50

60 60
55
25
50 50
50
40 40 0
45
30 30
-25
40
20 20 PMI - New Export Orders (Official & Caixin
simple ave., Latest=Jan., 2m Adv., LHS) -50
10 10 35
Lockdown in China Exports (US$ 3m % y/y, Latest=Dec., RHS)

0 0 30 -75
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Sources: CEIC, Refinitiv, CPB, Capital Economics

China Chart Book Page 7

 China Economics

Inflation
• Consumer price inflation dropped back below zero in January (38). Most of the decline was the result of
a fall in non-food inflation which more than offset the seasonal rise in food prices ahead of the Lunar New
Year festival (39). Pig stocks continue to recover from the African Swine Fever outbreak. But base effects
mean that even if pork supply stabilises at current levels, pork price inflation is likely to fall further in the
coming months (40), pulling down headline CPI.
• Looking through the seasonality, disinflationary pressures appear to be reversing. Core inflation has started
to rebound in m/m terms (41). The turnaround has been especially pronounced in services inflation thanks
to the rapid tightening of the labour market during the second half of last year.
• What’s more, producer price inflation returned to positive territory for the first time in a year last month
(42). A key driver has been the rebound in industrial commodity prices, but strong export demand and
supply constraints are also pushing up the price of manufactured inputs. The weekly producer goods price
index suggests that this trend has continued in recent weeks (43) though this is in part also due to a lower
base for comparison last year.

Chart 38: Consumer Prices (% y/y)
7 7
Headline
6 6
Non-food
5 Core (excl. food & energy) 5
4 4
3 3
Chart 39: Consumer Prices (% y/y)
5 25
Services (LHS) Food (RHS)
4 20
3 15
2 10

2 2
1 5
1 1
0 0
0 0
-1 -1 -1 -5
10 11 12 13 14 15 16 17 18 19 20 21 10 11 12 13 14 15 16 17 18 19 20 21

Chart 40: Pork Price Inflation & Pig Numbers Chart 41: Consumer Prices (% 3m/3m, SA annualised)
200 CPI - pork (% y/y, LHS) -70
-60 4 Core 4
160 Pig numbers (3m % y/y,
-50 3 Services 3
3m adv., inverted, RHS)
120 -40
2 2
80 Pig numbers fall, -30
pork prices rise -20 1 1
40
-10
0 0
0 0
10 -1 -1
-40
20 -2 -2
-80 Dotted line assumes that pig numbers 30
are unchanged at December 2020 levels -3 -3
-120 40
2015 2016 2017 2018 2019 2020 2021
11 12 13 14 15 16 17 18 19 20 21

Chart 42: Producer Prices Chart 43: Producer Price Inflation (% y/y)
8 2.0 25 Weekly producer goods price index (adv. 1m, LHS) 10
% m/m (RHS) Monthly producer price inflation (RHS)
6 % y/y (LHS) 1.5 20

4 1.0 15
5
2 0.5 10

0 0.0 5

-2 -0.5 0
0
-4 -1.0 -5
-6 -1.5 -10
-8 -2.0 -15 -5
11 12 13 14 15 16 17 18 19 20 21 17 18 19 20 21

Sources: CEIC, Refinitiv, Wind, Capital Economics

China Chart Book Page 8

 China Economics

Monetary
• With the economy now back on track, there are signs of a hawkish shift as the PBOC focuses more on
reining in financial risks. The surge in interbank rates last month is one (44). This was partly due to a
seasonal tightening of liquidity ahead of Lunar New Year, but the PBOC was evidently content to let it
play out. It normally responds by injecting liquidity. Instead, the PBOC further drained liquidity this year.

• The recent trajectory of interbank rates suggests that bank lending rates won’t fall any further (45). What’s
more, surveys indicate that quantitative controls, which are the key determinant of loan growth, are being
tightened (46). We expect policy tightening to be formalised with policy rate hikes this year.

• The withdrawal of policy support has begun to weigh on credit growth (47). After jumping during the first
half of 2020, loan growth has since dropped back. Meanwhile, government bond issuance – which ended
last year on a strong note – eased as local government quotas weren’t renewed (48). And the slowdown
in issuance of corporate bonds continued due to higher rates and worries over credit risk after the recent
bout of bond defaults. These more than offset the pick-up in equity issuance and shadow credit. The
improvement in the latter was driven by bankers’ acceptance drafts (49).

Chart 44: PBOC & Interbank Rates (%) Chart 45: Bank Lending & Interbank Repo Rates (%)
5 5 8.5 Average bank lending rate on 5.5
new loans (latest=Q4, LHS)
8.0 5.0
7d repo rate (DR007, 3m ave.,
4 4 7.5 adv. 3m, latest=Jan. ave., RHS) 4.5
7.0 4.0
3 3
6.5 3.5
6.0 3.0
2 2
Repo rate between all financial institutions 5.5 2.5
(R007, daily VWAP, 30d ave.)
1 Repo rate between depository institutions 1 5.0 2.0
(DR007, daily VWAP, 30d ave.) 4.5 1.5
PBOC reverse repo rate
0 0 4.0 1.0
15 16 17 18 19 20 21 11 12 13 14 15 16 17 18 19 20 21

Chart 46: PBOC Banking Survey (diffusion indices) Chart 47: Credit & Bank Loans (Outstanding, % y/y)
Loan demand 30 30
90 Weaker loan demand, 90
Loan approval tighter loan approvals Broad credit (AFRE + government bonds - equity)
80 80 25 Bank loans 25

70 70 20 20

60 60
15 15
50 50
10 10
40 40

30 30 5 5
09 10 11 12 13 14 15 16 17 18 19 20 21 11 12 13 14 15 16 17 18 19 20 21

Chart 48: Direct Financing (Outstanding, % y/y) Chart 49: Shadow Financing (Outstanding, % y/y)
40 40 120 Trust loans 120
Local government 100 100
debt swap: +66% Bankers' acceptance drafts
30 30 80 Entrusted loans 80
60 Total Shadow Financing 60
40 40
20 20
20 20
0 0
10 10
Government bonds -20 -20
Corporate bonds -40 -40
Equity
0 0
-60 -60
14 15 16 17 18 19 20 21
11 12 13 14 15 16 17 18 19 20 21

Sources: CEIC, Refinitiv, Bloomberg, Capital Economics

China Chart Book Page 9

 China Economics

Financial Markets
• Mainland equities have largely traded sideways after regulators moved to take some heat out of the stock
market following a speculative surge in July (50). Outflows via the Stock Connect Scheme have jumped
as mainland investors have piled into Hong Kong-listed shares of Chinese firms that trade at lower prices
in Hong Kong than on the mainland (51).

• The renminbi has strengthened further against the dollar during the past month, while the trade-weighted
renminbi has weakened (52). The offshore renminbi has been stronger than the onshore rate (53), which
points toward official intervention aimed at slowing the pace of appreciation onshore. We suspect that the
PBOC is leaning on state-owned banks and corporates to increase their net foreign assets.
• Balance sheet strains were papered over with stimulus during the COVID-19 downturn but officials have
begun paring back state support, thrusting credit risks back into the spotlight. Corporate bond defaults
were the highest on record in November and while they have since dropped back (54), jitters remain as
authorities continue to tighten restrictions on lending. This has pushed up credit spreads (55).
Chart 50: Equity Indices (20th Jan. 2020 = 100) Chart 51: Stock Connect Net Inflows (RMBbn, 30d sum)
150 150
160 160 Inflows
Shenzhen Composite
100 100
Shanghai Composite
140 140 50 50
0 0
120 120 -50 -50
-100 -100
100 100
-150 -150
-200 -200
80 80
-250 -250
Outflows
60 60 -300 -300
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 17 18 19 20 21

Chart 52: Renminbi Exchange Rate Chart 53: CNH-CNY Spread (basis points, 7d ave.)
108 6.4 80 Offshore weaker 80
Trade-Weighted (CFETC, 1st Jan 2020 = 100, LHS)
than onshore
Against US Dollar (inverted, RHS) 60 60
106
6.6 40 40
20 20
104
0 0
6.8
-20 -20
102
-40 Mainland markets -40
7.0 closed for Golden
100 -60 Week Holiday -60
-80 Onshore weaker -80
than offshore
98 7.2 -100 -100
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21

Chart 54: Onshore Corporate Bond Defaults (RMB bn) Chart 55: Corporate Bond Spread over Treasuries (bps)
60 4.5 Private firms
350 Jump in corporate 350
Private firms (LHS) Local SOEs bond defaults
4.0
50 Central SOEs
300 300
State firms (LHS) 3.5
40 % of outstanding bonds (12m sum, RHS) 3.0 250 250

2.5 200 200

30
Latest = Feb. as of 23rd 2.0 150 150
20 1.5
100 100
1.0
10 50 50
0.5
0 0.0 0 0
2014 2015 2016 2017 2018 2019 2020 2021 13 14 15 16 17 18 19 20 21

Sources: CEIC, Refinitiv, Wind, Capital Economics

China Chart Book Page 10

 China Economics

Hong Kong
• Hong Kong’s economy expanded marginally in q/q terms in Q4 as the re-imposition of containment
measures weighed on consumption, which makes up two-thirds of GDP (56).

• Prior to the latest round of containment measures, consumption had regained some lost ground thanks to
low infection numbers and fewer protests. But introduction of the new measures in November has led to
a reduction in mobility (57) and in retail sales (58). Restrictions started to be eased last week. Together
with the mass vaccination rollout that should start in the coming days, that should support a more lasting
recovery.

• Unemployment has risen to its highest level since 2004 (59). Encouragingly, after the largest fiscal support
on record last year, the budget this week signalled that fiscal policy will remain relatively loose (60), with
public spending lower than in 2020 but much higher than in 2019. Meanwhile, exports continue to do
well off the back of the strength of retail sales in developed countries (61) and demand from China.

Chart 56: Hong Kong GDP Chart 57: CE Hong Kong COVID Mobility Tracker
(%-change from pre-crisis baseline)
8 4 0 0

4 2
-10 -10

0 0
-20 -20
-4 -2
% q/q (RHS)
-30 Fourth outbreak -30
-8 % y/y (LHS) -4
CE forecast

Second outbreak Third outbreak Latest = 16th Feb.

-12 -6 -40 -40
15 16 17 18 19 20 21 22 23 Feb-20 May-20 Aug-20 Nov-20 Feb-21

Chart 58: Retail Sales Volumes (SA, May 2019 = 100) Chart 59: Unemployment Rate (%, 3m ave., seas. adj.)
110 110 9 9

100 100 8 8

7 7
90 90
Protests begin 6 6
80 80
5 5
70 70
4 4
COVID-19
60 outbreak starts 60 3 3

50 50 2 2
15 16 17 18 19 20 21 00 02 04 06 08 10 12 14 16 18 20

Chart 60: Budget Balance (% of GDP) Chart 61: Exports and G7 Retail Sales (% y/y, 3m ave.)
10 Actual Balance 10 12 G7 Retail Sales (CE Est. for Dec. & Jan., LHS) 40
Government Estimate in Budget Hong Kong Exports (RHS)
9 30
5 5
6 20
10
0 0 3
0
0
-10
-5 -5
-3
-20
-6 -30
-10 SARS Latest -10
Estimate -9 -40
-15 -15 -12 -50
03 05 07 09 11 13 15 17 19 21 06 08 10 12 14 16 18 20

Sources: Refinitiv, Google, WHO, Apple, CE

China Chart Book Page 11

 China Economics

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