From "September money and credit growth surprised the market on the upside" by Yu Song and Helen Qiao, Goldman Sachs economists, October 13
We see the rebound in credit growth as a clear sign that monetary authorities have changed their policy stance in September. Our channel checks with commercial banks suggest loan levels once reached an even higher level within September and were subsequently cut down because of window guidance by the People’s Bank of China (PBoC) and end-of-the-quarter loan/deposit ratio requirements by the China Banking Regulatory Commission (CBRC). We believe the PBoC’s stepped-up window guidance and subsequent reserve requirement ratio hike for six banks was only responding to a prior loosening, which resulted in what they viewed as overly rapid credit growth. We expect the monetary authorities will likely keep credit growth relatively stable going forward instead of tightening it very aggressively given activity growth has only started to recover following the stealth loosening from July … We believe the government is more likely to treat the RMB7.5 trillion (US$1.12 trillion) target flexibly and allow a higher level of say RMB500 billion per month, which implies close to RMB8 trillion of loans. Barring dramatic changes in FX inflows and external demand, we believe this level of credit growth should provide a sufficient amount of liquidity to keep the recovery in activity growth on track.
From "Chilling thoughts ahead of the 12th Five-year Plan" by Lu Ting, T.J. Bond and Zhi Xiaojia, Bank of America Merrill Lynch economists, October 15
China’s potential growth is trending down, though the pace of the slowdown could be more gradual than other Asian dragons … A year ago, we projected China’s post-crisis new normal growth rate to be 9.0%, two percentage points lower than the pre-crisis period. Two major factors are behind the inevitable slowdown: (1) Diminishing gains from institutional reforms; (2) Loss of demographic dividends. But two drivers could help buck the slowing trend: (1) Innovation as a result of increased R&D; (2) Within-country instead of outbound industrial relocation thanks to low capital base in poorer inland provinces. If assuming 10.1% growth in 2010, China posted an average 10.4% GDP growth in the last decade. In the six years post WTO accession, China registered an impressive average growth at 11.2%, with growth accelerating each year from 9.1% in 2002 to 14.2% in 2007. But such a golden time is over. Even without the global financial crisis, China’s growth was set to peak out in 2007 and drop rapidly to single digits. In the five years from 2011 to 2015, China could grow 9.0%, 9.0%, 8.5%, 8.0% and 8.0%, respectively. For the subsequent five years of 2016-20, growth might average at 7.0%. With this scenario, the Chinese economy in 2020 would be 2.1 times (in real terms) its size in 2010.