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

Macroeconomics

<ul>
<li>Like the US banks confronted dual crises in 1990 (Latin American debt, domestic S&amp;Ls), Chinese banks face a crisis of overlending to 50+ frontier markets, compounding the domestic property crisis. </li>
<li>Just as US banks were the main lenders to Mexico until its Aug'1982 default, recent defaulters (Zambia, SriLanka) are heavily indebted to China. The property crisis already burdens China's banks.</li>
<li>Dearth of macroeconomic expertise in the PBSC is alarming at a time when foreign reserves are down US$200bn YTD, despite YTD trade surplus of US$742bn. Dampened credit growth precludes evergreening. </li>
</ul>


Like the US banks confronted dual crises in 1990 (Latin American debt, domestic S&amp;Ls), Chinese banks face a crisis of overlending to 50+ frontier markets, compounding the domestic property crisis. 
Just as US banks were the main lenders to Mexico until its Aug'1982 default, recent defaulters (Zambia, SriLanka) are heavily indebted to China. The property crisis already burdens China's banks.
Dearth of macroeconomic expertise in the PBSC is alarming at a time when foreign reserves are down US$200bn YTD, despite YTD trade surplus of US$742bn. Dampened credit growth precludes evergreening. 


China's Twin Crises: Overlending to Frontier Markets & Domestic Property Sector

<ul>
<li>Over the latest 12 months, China's FX reserves declined by US$177bn despite a trade surplus of US$889bn, implying net services/income and capital outflows of US$1.07trn within the past year. </li>
<li>China cut mortgage rates twice in May-Aug'22, but residential property prices declined on a 12mma basis for the first time, &amp; floor space completed/sold declined by the most ever.</li>
<li>Amid global monetary tightening, China can't ease without a further RMB slump. Real GDP will only grow 3% in 2022, with risks to the downside as property/industrial overcapacity are exacerbated. </li>
</ul>


Over the latest 12 months, China's FX reserves declined by US$177bn despite a trade surplus of US$889bn, implying net services/income and capital outflows of US$1.07trn within the past year. 
China cut mortgage rates twice in May-Aug'22, but residential property prices declined on a 12mma basis for the first time, &amp; floor space completed/sold declined by the most ever.
Amid global monetary tightening, China can't ease without a further RMB slump. Real GDP will only grow 3% in 2022, with risks to the downside as property/industrial overcapacity are exacerbated. 


China: Capital Flight Limits Easier Money Amid Spreading Crisis in Property Markets

<ul>
<li>This being a "political-transition" year, with President Xi Jinping seeking re-selection in Oct-Nov'22 for another 5 years, real GDP growth is targeted at 5.5% but will likely be slower.</li>
<li>Two RRR cuts (Jul'21, Dec'21) and an LPR cut (Jan'22) enabled TSF to expand 19.3% faster in Jan'22 than any previous month. This boosted FAI by 12.2%YoY in Jan-Feb'22. </li>
<li>Serial lockdowns in Shenzhen, Shenyang, Jilin, Shanghai will constrain growth in Mar'22, likely eating into 2Q2022 as well. IMF forecast of 4.8% likelier than government's 5.5% aim. </li>
</ul>


This being a "political-transition" year, with President Xi Jinping seeking re-selection in Oct-Nov'22 for another 5 years, real GDP growth is targeted at 5.5% but will likely be slower.
Two RRR cuts (Jul'21, Dec'21) and an LPR cut (Jan'22) enabled TSF to expand 19.3% faster in Jan'22 than any previous month. This boosted FAI by 12.2%YoY in Jan-Feb'22. 
Serial lockdowns in Shenzhen, Shenyang, Jilin, Shanghai will constrain growth in Mar'22, likely eating into 2Q2022 as well. IMF forecast of 4.8% likelier than government's 5.5% aim. 


Covid Stalls the TSF-Fuelled Cyclical Rebound in the Political-Transition Year

<ul>
<li>China's M2 has expanded 5-fold since Aug2008, while the US's M2 has expanded just 2.5-fold. Yet China cut RRR by 100bp this year, and lowered its LPR too. </li>
<li>In May-Nov2021, FAI (fixed asset investment) declined by an average of 3.2% YoY. Retail sales decelerated from 24% YoY growth in 1H21, to 5.1%YoY in 3Q21 and 4.4%YoY in Oct-Nov21. </li>
<li>Booming external trade took the trade surplus to a record US$595bn in Jan-Nov21, but foreign reserves were up by just US$5bn. Capital flight constrains the ability to ease more. </li>
</ul>


China's M2 has expanded 5-fold since Aug2008, while the US's M2 has expanded just 2.5-fold. Yet China cut RRR by 100bp this year, and lowered its LPR too. 
In May-Nov2021, FAI (fixed asset investment) declined by an average of 3.2% YoY. Retail sales decelerated from 24% YoY growth in 1H21, to 5.1%YoY in 3Q21 and 4.4%YoY in Oct-Nov21. 
Booming external trade took the trade surplus to a record US$595bn in Jan-Nov21, but foreign reserves were up by just US$5bn. Capital flight constrains the ability to ease more. 


China's Monetary Easing Will Do Little to Counter a Structural Slowdown

Founder of Antler Capital

Stanley Tsai, CFA

<ul>
<li>In the absence of an outright LPR cut later this month, the latest RRR move's impact on the real economy may be rather modest. </li>
<li>Assuming CNY500bn of MLFs will be withdrawn in the coming months, the net injection this time around is CNY700bn, about 40% of an average month's new loans.</li>
<li>We would watch out for a potential bubble in the onshore credit market before incremental liquidity benefits the broader economy.</li>
</ul>


In the absence of an outright LPR cut later this month, the latest RRR move's impact on the real economy may be rather modest. 
Assuming CNY500bn of MLFs will be withdrawn in the coming months, the net injection this time around is CNY700bn, about 40% of an average month's new loans.
We would watch out for a potential bubble in the onshore credit market before incremental liquidity benefits the broader economy.


China Macro: RRR Cuts' Diminishing Impact

China

The MSCI China Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1992.

MSCI China Index (MXCN INDEX)

China's Twin Crises: Overlending to Frontier Markets & Domestic Property Sector

Most vulnerable frontier markets (including the defaulters Zambia, Sri Lanka) are heavy borrowers from China, which faces its own local property...

Prasenjit K. Basu

China: Capital Flight Limits Easier Money Amid Spreading Crisis in Property Markets

FX reserves decline US$221bn ytd, and implied net capital and services/income outflows are US1.07trn in the last 12 months. Property and industrial...

Prasenjit K. Basu

Covid Stalls the TSF-Fuelled Cyclical Rebound in the Political-Transition Year

TSF surged 7% more in Jan-Feb22 than ever before, so FAI grew 12.2%YoY in Jan-Feb22. Serial lockdowns in key export & financial hubs will erode...

Prasenjit K. Basu

China's Monetary Easing Will Do Little to Counter a Structural Slowdown

China's M2 grew 5-fold since Aug08 (vs 2.5-fold for the US), but China cut RRR 100bp in 2021. FAI fell 3.2%YoY in 2H21, but capital flight of...

Prasenjit K. Basu

China Macro: RRR Cuts' Diminishing Impact

In the absence of an LPR cut, the impact of the latest RRR move may be limited. We estimate that net of MLF maturities, the liquidity boost is...

Stanley Tsai, CFA