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Latest Economic Research

China's New Stop-Go Cycle

China is living through another stop-go cycle even though the stop, COVID-19, is different this time. Policymakers recently said they aren't setting a GDP growth target this year. The new target is jobs but a sluggish service sector means a slow jobs recovery and more stimulus. Financial conditions confirm stimulus is arriving. This will lift growth for a while (our forecasts are 1.2% for 2020 and 7.4% for 2021), but a tightening will follow in 2021.

China's economy is healing. Indicators point to a U-shaped recovery assuming COVID-19 remains contained. Unsurprisingly, healing is uneven. Large firms are finding their feet faster than small firms and industry is recovering faster than the service sector.

We estimate that just three months after the peak in COVID-19 cases in early February, large industrial firms were back at 95% of normal capacity. Manufacturing output rose by 5% in April compared with a year ago. Not all industries are firing at the same time, however. The technology sector has rebounded, autos have stabilized, and consumer goods are still below 2019 levels.

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Equity Market

How the Chinese Equity Market Responded to the Domestic and Global Coronavirus Outbreak

As the coronavirus has spread across continents, countries around the world are experiencing a slowdown in economic activity and volatility in the financial markets. The S&P Pan Asia BMI and S&P 500® lost 20.5% and 20.0%, respectively, in the first quarter of 2020. During the same period, the S&P China A Domestic BMI and S&P China 500 (which seeks to track the top 500 domestic and offshore listed Chinese companies) dropped 9.5% and 10.3%, respectively, which was only half of the loss suffered by the U.S. and Pan Asian markets.

Before coronavirus infection accelerated in the rest of the world, the rate of domestic outbreak in mainland China was the determinant driver of the Chinese equity market performance. During the market decline between Jan. 20 and Feb. 3, 2020, the vast majority of industries suffered losses; however there was a significant spread in industry returns, from 3.2% to -17.9%. Health care equipment, health care technology, and biotech were top-performing industries due to the threat of the outbreak. As cities in China were locked down and travel was restricted to control the outbreak, airlines, retailers, restaurants, and hotels took a hard hit, while companies in interactive media, internet retail, and food and staples retailing were least affected. Semis, software, electronic equipment, and tech hardware companies were also less hammered by the domestic virus outbreak and they were among the top performers during the market rally between Feb. 3 and Feb. 20, 2020, when coronavirus infection rates slowed in mainland China.

The Essential Podcast, Episode 11: A View to the Future – China Beyond the Pandemic

Priscilla Luk, Managing Director, Head of Global Research & Design, Asia Pacific at S&P Dow Jones Indices, joins The Essential Podcast to discuss the early signs of an economic recovery in China, the changing relationship between China and emerging markets, and the challenges for deleveraging the Chinese economy during the recovery.

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From COVID-19 to U.S.-China Tensions, What to Expect Next for Chinese Equities

The China A-shares market experienced a substantial drawdown, with significant industry return spreads during the early and middle stages of the COVID-19 pandemic in China. The Health Care sector performed the best, while consumer-based constituents such as airlines and hotels lagged the most.

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APAC Economic Research

Asia-Pacific Losses Near $3 Trillion As Balance Sheet Recession Looms

S&P Global Ratings now expects a steeper decline of economic growth in Asia-Pacific in 2020. We forecast a 1.3% contraction this year before growth of 6.9% in 2021, compared with our previous projection of 0.9% and 6.7%. This means our GDP forecast for the region for 2020 and 2021 is about $2.7 trillion lower than before the pandemic began. Asia-Pacific has shown some success in containing COVID-19 and, by and large, responded with effective macroeconomic policies. This can help cushion the blow and provide a bridge to the recovery. Still, by the end of 2023, we expect permanent damage to the level of output of between 2% and 3%. Risks are more balanced as pandemic curves flatten but remain prominent.

Jobs and the Climb Back from COVID-19

Unemployment rates across Asia-Pacific could rise by well over 3 percentage points, twice as large as the average recession, as social distancing measures hit the engine of job creation: the service sector.

Jobs are easily lost but hard to win back. Surging unemployment would mean a shallower recovery and, in some economies, credit stress for leveraged households.

Policies aimed at keeping workers employed should limit the damage. However, incentives for these policies weaken over time. They are not panaceas.

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China's Impact

China: An Unlikely Stabilizer in Emerging Markets

As investors grapple with the economic fallout of COVID-19 and seek to understand its impact, China has become an unexpected stabilizing force in emerging markets. Despite being the epicenter of the outbreak, Chinese equities have experienced lower volatility, minimal currency fluctuation, and less exposure to falling oil prices in the recent market environment in comparison with emerging market peers.

On Feb. 19, 2020, U.S. markets closed at their all-time high. The following days and weeks would see a precipitous drop in global markets, as the pandemic became the primary concern. By March 23, 2020, the S&P Emerging BMI had declined 31.9% to its recent low, in a matter of just over four weeks since signs of slowing started in the U.S. However, not all emerging regions fared equally, and China—the epicenter of the virus and the first to suffer the most drastic economic consequences—outperformed broader emerging markets by more than 20 percentage points in the first quarter.

China's Deflating Recovery Still Needs Stimulus

China's real GDP growth in the second quarter was an upside surprise for us and the markets. At 3.2% compared with the same quarter in 2019, it suggests that China's economy is well on the road to recovery and could grow above 2% for the full year. This clearly poses upside risks to S&P Global Ratings' 1.2% forecast for 2020.

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Sector Impact

China Banks After COVID-19: Big Get Bigger, Weak Get Weaker

As COVID-19 retreats in China, with the numbers of new daily cases stabilizing at double digits, the country's banking system is surveying the damage. The crisis will test lenders' resilience with more than a 50% increase in nonperforming assets likely in 2020 amid a halving in Chinese GDP growth. S&P Global Ratings expects the outbreak will exaggerate the pecking order of Chinese banks. Regional lenders with a high exposure to small enterprises will be hit hardest, while the biggest banks will likely come through the turmoil with enhanced market position.

To get a sense of how Chinese banks will fare in a post-COVID-19 world, S&P Global Ratings looks at the industry along three dimensions: exposure to Hubei province, exposure to small enterprises, and exposure to industries hit hard by the outbreak.

About one-third of Chinese bank loans are in sectors significantly stressed by the pandemic. Regulators will likely give banks leeway to offer forbearance (debt rollovers, payment extensions, etc.) to borrowers hit by the outbreak. Banks are allowed to extend loan repayments from borrowers with sound credit standing to June 30, 2020. Some of these loans will see a payment extension of more than 90 days, which under normal circumstances, would have been classified as an NPL.

How Covid-19 Impacts Chinese Airline Companies

This paper provides an illustrative case of COVID-19 impact on Chinese airline companies based on insights provided by S&P Global Market Intelligence (“Market Intelligence”) Credit Analytics scores for Chinese airlines.

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Despite rebounding sales, China's property market not out of woods

Although property sales of China's largest developers have rebounded since March as the economy gradually reopens, experts said it is too early to gauge when the nation's housing market will fully recover from a slowdown that started long before the pandemic lockdown.

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Related Podcasts

Listen: Signs of China's oil demand recovery emerge

Fuel demand across Northeast Asia plunged at the height of the coronavirus outbreak in the region over February and March. But the tide has since turned for the good in recent months. Manufacturing, construction and transportation activities are picking up fast in China with signs of the pandemic being largely contained in the country.

S&P Global Platts oil specialists Philip Vahn, Oceana Zhou and Avantika Ramesh examine oil market indicators in China and the sources that are feeding the country's renewed thirst for crude.

Listen: China's Two Sessions provide positives for oil, metals

At China's latest "Two Sessions," the government did not provide a GDP target for 2020, but it outlined plans to boost infrastructure investment. The big focus this year was on maintaining employment levels and protecting the economy from uncertainties caused by the coronavirus pandemic. What are the implications for the oil and metals markets? Will it be enough to drive consumption?

Listen to the podcast