China | Has the worst already passed?

Summary

There are some positive signals in August activity indicators, suggesting the economy might have passed the worst amid a series of recent policy support.

Key points

• Key points:
• The economy might have passed the worst amid a series of recent policy support, although there will still be a long haul for the Chinese economy to go back on the right track.
• There are two hot debates about the Chinese economy recently: (i) In the long term, whether the Chinese economy will enter into “Japanization” and “balance sheet recession”? (ii) In the short term, whether the Chinese economy will go into “hard-landing”?
• Chief among the recent stimulus is the 10 bps one-year LPR cut on August 21 and yesterday’s 25 bps unexpected RRR cut, as well as the recently announced easing housing market measures-lowering existing mortgage’s interest rate, lowering down-payment rate etc.
• The bottomed-out signals in August seem to be broad-based, from both supply and demand side. Except for still weak fixed-asset investment, all of the other indicators such as industrial production, retail sales, exports and imports, inflation as well as credit recorded a significant improvement.
• We believe the Chinese economy could gradually bottom out in the rest of this year amid a series of recent monetary and fiscal stimulus, but how to balance growth stimulus and financial stability, is always a constant challenging job for Chinese authorities going forward.

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