Chief Economist

Diana Choyleva

Enodo Economics

Enodo Economics is an independent macroeconomic forecasting company that untangles complexity, challenges the consensus, and makes sense of the future. Our focus is on China – one of the most misunderstood economies in the world, but one of the most important to figure out.  Enodo’s chief economist, Diana Choyleva, has been analysing China for almost 20 years, while Enodo’s team boasts a combined 140 years’ experience covering China’s economy, politics and markets. 

Macroeconomics

<h2>China News That Matters</h2><ul>
<li>Beijing releases carbon emissions action plan</li>
<li>Lipstick bro pockets $2bn in Singles’ Day sales</li>
<li>Taxing times</li>
<li>US to China: You’ve got our attention now</li>
<li>Beijing warns US on Taiwan support</li>
</ul><div class="content-remarks">In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div>

China News That Matters
Beijing releases carbon emissions action plan
Lipstick bro pockets $2bn in Singles’ Day sales
Taxing times
US to China: You’ve got our attention now
Beijing warns US on Taiwan support
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>Daily economic surprise indexes warn of sharp Chinese economic slowdown</li>
<li>This aligns with falling rates across Chinese yield structure</li>
<li>Moves unrelated to accommodative PBoC monetary policy</li>
<li>Chinese yields could fall another 50-100bp which is bullish for US Treasuries</li>
</ul>


Daily economic surprise indexes warn of sharp Chinese economic slowdown
This aligns with falling rates across Chinese yield structure
Moves unrelated to accommodative PBoC monetary policy
Chinese yields could fall another 50-100bp which is bullish for US Treasuries


Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

China has been the biggest beneficiary of the global glut of central bank liquidity created since the Global Financial Crisis of Sept 2008 -- which was multiplied further in 2020 with renewed central bank aggression amid the Covid pandemic. In 2007, China already had massive industrial over-capacity. But China rode the tide of global liquidity since 4Q 2008, with China's M2 money supply expanding from US$6.56 trillion in August 2008 to US$34.96 trillion in April 2021 (more than a 5-fold increase in 13 years) -- while US M2 expanded from US$7.75 trillion to US$20.11 trillion over the same period (a 2.5-fold increase).  Now, with US core CPI inflation at 3% and the core PCE deflator up 3.1% YoY in April 2021, it will be impossible for the Fed to keep adding US$120 billion of assets to its balance sheet monthly. Global liquidity conditions are bound to tighten. China will find it difficult to export its overcapacity, as the world has become more wary of allowing China to dump (i.e., export production below cost), especially as production ramps up in the rest of the world amid the full reopening from the pandemic. We recommend staying cautious on the China market, avoiding its tech titans particularly, as they run into political challenges from Xi Jinping.

China has been the biggest beneficiary of the global glut of central bank liquidity created since the Global Financial Crisis of Sept 2008 -- which was multiplied further in 2020 with renewed central bank aggression amid the Covid pandemic. In 2007, China already had massive industrial over-capacity. But China rode the tide of global liquidity since 4Q 2008, with China's M2 money supply expanding from US$6.56 trillion in August 2008 to US$34.96 trillion in April 2021 (more than a 5-fold increase in 13 years) -- while US M2 expanded from US$7.75 trillion to US$20.11 trillion over the same period (a 2.5-fold increase).  Now, with US core CPI inflation at 3% and the core PCE deflator up 3.1% YoY in April 2021, it will be impossible for the Fed to keep adding US$120 billion of assets to its balance sheet monthly. Global liquidity conditions are bound to tighten. China will find it difficult to export its overcapacity, as the world has become more wary of allowing China to dump (i.e., export production below cost), especially as production ramps up in the rest of the world amid the full reopening from the pandemic. We recommend staying cautious on the China market, avoiding its tech titans particularly, as they run into political challenges from Xi Jinping. 

China Has Been the Global Winner from the Liquidity Glut of 2008-21; Now Comes Pain

China has had a spectacular 1Q 2021, with exports and industrial output soaring relative to the low base in Jan-Feb 2020 (the one quarter in which China's economy shrank last year), but also growing at a good clip relative to 2019 (+33% for exports and +1.9% for industrial output); imports were up 17.3% in Jan-Feb 2021 relative to 2 years ago. This suggests that real GDP should grow about 12% YoY in 1Q 2021, or expand 4.7% relative to 1Q 2019.   While the current account surplus widened to 1.8% of GDP in 2020 (the largest in dollar terms globally at US$301 billion), and the surplus for April-December 2020 was US$335 billion, foreign reserves only increased by US$156 billion during that 9 month period. So net capital outflows were substantial, at US$179 billion in April-December 2020, at a time when the RMB was appreciating, and China should normally have attracted net capital inflows. Chinese residents continue to find ways of taking capital out of China. During Jan-Feb 2021, net services and capital outflows were US$115 billion (with foreign reserves down US$12billion). Despite massive overcapacity across most industrial sectors, China did not shed its addiction to fixed asset investment (FAI), which increased by 2.9% in 2020, even as the rest of the world was in recession. In Jan-Feb 2021, FAI surged by a further 35.1% YoY -- thus expanding 16.9% relative to its level in Jan-Feb 2019. The surge in FAI is adding more capacity to industries already burdened by overcapacity, at a time when external demand is set to weaken as the rest of the world's economies gradually reopen, reducing demand for China's exports. With external and domestic demand likely to slow (the latter weakened by capital flight), the rest of 2021 will be increasingly difficult for China's economy.

China has had a spectacular 1Q 2021, with exports and industrial output soaring relative to the low base in Jan-Feb 2020 (the one quarter in which China's economy shrank last year), but also growing at a good clip relative to 2019 (+33% for exports and +1.9% for industrial output); imports were up 17.3% in Jan-Feb 2021 relative to 2 years ago. This suggests that real GDP should grow about 12% YoY in 1Q 2021, or expand 4.7% relative to 1Q 2019.   While the current account surplus widened to 1.8% of GDP in 2020 (the largest in dollar terms globally at US$301 billion), and the surplus for April-December 2020 was US$335 billion, foreign reserves only increased by US$156 billion during that 9 month period. So net capital outflows were substantial, at US$179 billion in April-December 2020, at a time when the RMB was appreciating, and China should normally have attracted net capital inflows. Chinese residents continue to find ways of taking capital out of China. During Jan-Feb 2021, net services and capital outflows were US$115 billion (with foreign reserves down US$12billion). Despite massive overcapacity across most industrial sectors, China did not shed its addiction to fixed asset investment (FAI), which increased by 2.9% in 2020, even as the rest of the world was in recession. In Jan-Feb 2021, FAI surged by a further 35.1% YoY -- thus expanding 16.9% relative to its level in Jan-Feb 2019. The surge in FAI is adding more capacity to industries already burdened by overcapacity, at a time when external demand is set to weaken as the rest of the world's economies gradually reopen, reducing demand for China's exports. With external and domestic demand likely to slow (the latter weakened by capital flight), the rest of 2021 will be increasingly difficult for China's economy. 

China: Large Net Capital Outflows Presage Trouble as Excess Capacity Begins to Bite

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China.

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China. 

China's 2021 Will Look Spectacular in 1Q, but Overcapacity Will Bite Thereafter

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China Treasury (CHINA GOVT)

COP26/ E-Commerce/ Tax/ Weapons/ Taiwan

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

China's Economy: Chips Or Cracks?

Daily economic surprise indexes show sharply lower Chinese economic momentum in early June. This should lead to 50-100bp cuts in rates along the...

Michael J. Howell

China Has Been the Global Winner from the Liquidity Glut of 2008-21; Now Comes Pain

China rode the global liquidity wave since 4Q 2008. Now that the tide is turning (amid soaring US core inflation), industrial overcapacity and anti...

Prasenjit K. Basu

China: Large Net Capital Outflows Presage Trouble as Excess Capacity Begins to Bite

Net capital outflows were US$179bn in Apr-Dec 2020 despite the rising RMB; in Jan-Feb 2021, outflows were $115bn. The surge in FAI is creating...

Prasenjit K. Basu

China's 2021 Will Look Spectacular in 1Q, but Overcapacity Will Bite Thereafter

FAI surge of 9.2%YoY in Apr-Dec 2020 will hurt once global economy normalizes in 2H 2021. But in the interim, 1Q 2021 will be spectacular for...

Prasenjit K. Basu

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