From "Strong Recovery May Lead to Change in Macro Policy"by Wang Tao, UBS senior China economist, July 16:
We raise our GDP forecast [to 8.2% in 2009 and 8.5% in 2010] based on two recent developments: continued record-breaking new bank lending in June, and the strong rebound in housing starts. The RMB1.53 trillion new loans in June brought total new lending in 1H to RMB7.4 trillion, or almost one-quarter of our estimated 2009 GDP. We now expect total new lending in 2009 to reach RMB9 trillion … The massive increase in bank lending will be coupled with local governments’ drive for investment and growth, leading to a faster-than-previously envisaged fixed investment growth in the coming quarters. The 12% y/y growth in housing starts in June is the turning point that we have been looking for… We consider real estate construction a key and necessary factor for sustained domestic demand recovery in China, as we do not think increasing infrastructure investment would be enough to offset the decline in both export demand and housing investment. The recovery of real estate investment and property construction has reduced a key uncertainty to the overall outlook, and will help to sustain the growth recovery in the next two quarters… We believe from now on macro policy will be focused on consolidating existing gains in growth recovery, and fine tuning will replace significant measures of expansion.
From "China: Economy boomed in 2Q; looking for continued above-trend growth in coming quarters"by Frank Gong and Wang Qian, J.P. Morgan economists, July 16
On the policy front, given surprisingly strong loan growth, rising inflation expectations and the surge in domestic asset prices, the central bank is fine-tuning its highly accommodative monetary policy stance in our view, relying on open market operations to restrain liquidity. In particular, we believe policymakers will likely increase scrutiny of new bank loans… That said, we believe policymakers in China are unlikely to come out with drastic tightening measures on the monetary front, as external demand remains weak and inflation pressure is still subdued… We maintain our view that the central bank will keep the benchmark lending rate unchanged until 4Q10. We expect the [reserve requirement ratio] to bottom at 13.5% this year and expect USD/CNY to be stable at around 6.83 in coming months, and be kept in a tight range of 6.80-6.85, although over the next two to three years, CNY is likely to appreciate an average 3% against USD every year. On the fiscal front, the government could focus on increasing household income and improving social infrastructure during 2H09 in our view, in a bid to further stimulate domestic consumption both in the near term and medium term and improve economic structure to achieve a better balance of growth.