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Chinese economy has experienced a bumpy recovery after the Shanghai lockdown was lifted. We lowered our 2022 prediction from 4.5% to 3.6%.
Chinese economy shows resilience in August after a bumpy recovery path since the Shanghai lockdown lifted amid the easing of fiscal and monetary policy support.
We estimate China’s optimal foreign reserve level is around USD 2,769.3 billion, USD 454.5 billion lower than the current level. That means, there is still some buffer to reduce the reserve amid risks of western potential sanctions.
Asia’s growing inflation pressures have significantly picked up due to the global supply chain disruptions and high commodity prices. Inflation dynamics have been divergent as consumption habits hit differently. Inflation inertia remains high, while housing and transport push is stable, food prices are climbing.
The PBoC cut MLF, repo rate and LPR recently to stimulate growth, but it does not indicate China will start a massive easing cycle.
July’s indicators, namely retail sales, industrial production and fixed asset investment, all fell below their previous readings and significantly missed the market expectations, posing challenges to the whole year growth outlook.
Chinese authorities face "Impossible Trinity" of policy targets in 2022. They reverted to “old" economic growth engine-infrastructure, real estate and exports-to stimulate growth from Shanghai lockdown.
Due to the authorities’ expansionary monetary and fiscal policy this year, the economy started to gradually recover in May and June as the lockdown measures in Shanghai came to an end.