Entries for 'Asia Pacific'

Indonesia has faced less pressure than other ASEAN countries. Favorable terms of trade and fiscal subsidies helped contain energy prices. Bank Indonesia can afford to be patient with hikes as core CPI remains moderate. Policy normalization through term structure and government bond sales, should help ease capital outflow pressures amid global tightening.

China’s banking sector has expanded rapidly in the past decade, with a brief pause in 2018-19 due to deleveraging efforts. It is also competitive globally, with one of the lowest cost ratios. However, banks’ returns and interest margins have deteriorated, and credit risk remains elevated.

Shanghai’s lockdown in the spring grabbed global attention and shook investor confidence, but its impact was less severe than Wuhan’s lockdown in 2020. However, the recovery may be more difficult this time due to housing woes. We maintain our subdued outlook of 3.5% growth for 2022.

The spillovers from the war in Ukraine appears to be somewhat more contained than expected earlier.

After loans were swapped into bonds by 2018, the local government's on-balance-sheet debt is straightforward. However, debt hidden in various government-backed investment entities is still a major concern. We argue that this so-called hidden debt is, at most, LG contingent liabilities.

China’s exports to Russia fell in March-May, as sanctions limited Russia’s ability to pay. China’s imports from Russia hit a record high in May, lifted by both growing volume and rising prices. We estimate that China has been paying spot price for Russian oil, but a discounted price recently.

The RMB has made marked progress in its global use, especially in cross-border investments. However, it is far behind the USD and EUR in global payments, reserves, FX trading, and trade finance. To promote the global use of RMB, China needs to further open up its financial sector.

The widening of the current account deficit has led to a decline in official reserves to critical levels. Reviving the IMF program is necessary to ensure that Pakistan can meet its financing obligations

China's State Council unveiled a plan to promote retirement savings, which is sorely needed, given inadequate public and employer pensions. This new retirement savings plan will help deepen China's financial markets and reduce volatility.

China’s FX market has grown and changed significantly. This China Spotlight looks into China’s FX market structure and how it shapes the RMB exchange rate.

Despite weak domestic demands, we expect a moderately narrower current account surplus in 2022, due to rising energy prices. Moreover, under the relatively stable headline numbers, the structure of China's current account is undergoing significant changes.

Russia’s war on Ukraine has caused a strong surge in commodity prices, as well as uncertainty regarding global growth and the outlook for inflation. We have revised down our growth forecast for the ASEAN-5 and South Korea. Rising inflation will prompt central banks to begin policy normalization in ’22. Current account dynamics will be driven by relative exposure to commodities. Risks stem from an uncertain outlook for China and higher energy prices.

The direct impact of the war in Ukraine on China's economy is minor due to the relative sizes of these economies. However, the indirect impact of global consumer and investor confidence can be profound and complicated. We expect the war to reduce China's GDP growth by 0.2 points.

China’s 2022 budget seems rather tepid with a narrower fiscal deficit and flat new debt. Once the deficit in the government fund account and special transfers are considered, the consolidated fiscal deficit could reach 8.1% of GDP in 2022, lending strong support to economic recovery.

China's local government (LG) bonds have ballooned since 2018 as LGs were given ever greater bond quotas to finance deficit spending. The recent real estate slump exacerbated the risks as local governments depend heavily on land revenues. LGs are increasingly reliant on CG-LG transfers.

Russia’s invasion of Ukraine has triggered a number of severe sanctions. China, an important partner, has maintained a deliberately neutral stance. While Russia-China trade is important, financial links remain minimal. China could mitigate Russia’s loss of access to global payment systems. Furthermore, with 40% of reserves frozen, holdings in China are critical. The Bank of Russia (CBR) may need to get creative with FX interventions.

China’s economy slowed down markedly in 2H2021 due to energy shortages, tougher regulations, and a housing slump. Though policies are turning more supportive of growth, the outlook for 2022 is still highly uncertain. We expect China’s GDP to grow about 5% in 2022.

Despite having over $2 tln of net foreign assets per IIP, China runs over $100 bln investment losses a year. This China Spotlight looks at the reasons behind this. China earned a reasonable return on its foreign assets but paid a hefty cost for its foreign liabilities.

This note explains the interest rate tools at PBoC’s disposal and China’s interest rate transmission mechanism.