From “China’s 1st Quarter GDP and March Economic Data” by Jing Ulrich, J.P. Morgan chairman of China Equities, April 16:
Deflation will remain a concern in the near term as China tackles its overcapacity issues. However, the threat of a sustained decline in prices is unlikely … Potential policy actions include further interest rate cuts and RRR adjustments, enlarging the scale of the fiscal stimulus package and raising electricity prices. Sustained price declines are concerning to policymakers because deflationary expectations often lead consumers to defer purchases, resulting in further downward price pressure … China’s new bank loans surged to a record RMB1.89 trillion (US$276.6 billion) in March … With abundant liquidity in the real economy, inflation could resurface toward mid-year.
From “Does China Need Additional Policy Stimulus Now?” by Wang Tao, UBS chief China economist, April 9:
Construction of infrastructure projects is expected to significantly increase only in Q209 … In the metals sector, traders anticipated the increase in stimulus-related demand early, and started to increase their orders for steel products in December 2008. This led to an early recovery of steel production … before final construction demand picked up, [which] put downward pressure on prices, production and electricity consumption … We believe China’s stimulus-led domestic recovery is well underway … Given the pace bank lending has been growing, the next policy move needs to be taming credit growth and local governments’ investment drive to reduce the risk of massive resource misallocation, asset price bubbles, and damage to the banking system.