Country Insights

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The trade war – the Chinese response
CHINA ADVISORY - Report 07 Jun 2019
We analyze the response of China to the trade war in four buckets: politics, macro-economy, global supply chains, and technology. Of the four, China’s technological development and global supply chains are likely to suffer the most. Xi’s political power is weakened The political realm is t...

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China’s “shadow” shadow banking
CHINA ADVISORY - Report 03 Jun 2019
We have just completed a two-day visit to Fuzhou, in Fujian Province, to interview local banks, investors, pawnshops and other non-bank institutions in the capital chain. We drew three conclusions: 1) The significant increase in non-bank lending has continued to grow since the original explosi...

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Capital flows and China’s RMB policy
CHINA ADVISORY - Report 22 May 2019
The RMB is supported by Chinese capital “round-tripping” Inward capital flows have been encouraged by Beijing through a variety of policies. These inward flows have helped to support the strength of the RMB. However, our interviews suggest the majority of this capital is, in fact, institutiona...

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Defaults in China - how the state handles financial failure
CHINA ADVISORY - Report 10 May 2019
As liquidity tightens in China there is a likelihood of increasing pressure on corporates that could lead to a rise in defaults. We look at a number of measures to understand what those pressures currently are and what methods Beijing is using to resolve them. Our conclusion is that China increas...

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China’s risky insurance investments
CHINA ADVISORY - Report 06 May 2019
China’s insurance industry has significantly increased its asset base faster than general growth of the economy. However, this growth has come with a cost: an increase in risky investments, and a willingness to increase its investments to support the state goals of infrastructure investment and p...

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Beijing’s debt “troubleshooter”: The China Development Bank
CHINA ADVISORY - Report 26 Apr 2019 1 response
We have been arguing for the rising importance in China of private capital to support state activities and GDP growth in general. However, the role of the state in China’s capital flows should not be dismissed. One institution that is playing a growing role in China is the China Development Bank,...

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China’s private stimulus
CHINA ADVISORY - Report 19 Apr 2019
China has a significant economic “hangover” from the ten-year-old fiscal stimulus in 2009. That stimulus relied primarily on bank loans as a quick injection of capital to rejuvenate economic growth. Since then, policy has shifted through several phases and a variety of financial intermediaries an...

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The financialization of the Chinese economy
CHINA ADVISORY - Report 12 Apr 2019
The U.S. financial crisis was caused by the excessive “financialization” of the economy. Loans flowing to the residential property market were expanded into derivative products on Wall Street, sold to investors as securities, and funded primarily through short-term sources. The result was a matur...

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China’s slowing property market and the impact on economic stability
CHINA ADVISORY - Report 05 Apr 2019
The China property market has regained investors’ attention as the most important pillar of a recovery story. However, recent data on land sales, property financing, and consumption trends suggest analysts may be too optimistic. Our views are more pessimistic: * Weakening property prices...

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The politics of credit allocation in China
CHINA ADVISORY - Report 29 Mar 2019
Discussions of China’s various stimulus programs focus on the growth of total social financing, bond purchases, swaps and other announced “official” credit policies. However, one important aspect of credit intermediation has been overlooked: geography. This political credit allocation by geograph...

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Privatizing credit in China – Part 2
CHINA ADVISORY - Report 22 Mar 2019
​We have been arguing that China is increasingly privatizing credit to avoid increasing official state debt. This will have several outcomes in terms of future credit flows from the banks and shadow banks. Recent data on land sales, a key source of revenue for local governments, and on non-perfor...

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Private credit for state ends
CHINA ADVISORY - Report 15 Mar 2019
China is quietly privatizing much of its debt due to an increasing shortage of domestic capital. This will have several outcomes: * A rise in off-balance sheet financing. * An increasing division between state firms that obtain state capital and local infrastructure and private companie...

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The National People’s Congress: Worrying assumptions about revenue in 2019
CHINA ADVISORY - Report 05 Mar 2019
China’s annual National People’s Congress provides a window into the thinking of the government about its plans for the year. Both the assumptions and omissions are a valuable tool for forecasting China’s economic trajectory. The Ministry of Finance’s report on the economy outlined by Premier ...

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Who’s buying China’s domestic bonds?
CHINA ADVISORY - Report 04 Mar 2019
One large part of China’s growing credit stimulus has been the bond market. A significant portion of this increased investment has come from the private sector. But how much? And how stable and transparent is this source of funding? We analyzed data on China’s bond market to understand the cha...

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Concerns at the top despite high credit growth
CHINA ADVISORY - Report 22 Feb 2019
Premier Li Keqiang warned about excessive credit growth in a meeting at the State Council this week. The January data would seem to confirm the excess growth. Li’s comments suggest conflict within the senior levels of government about the degree of monetary expansion. We just spent several days i...