From "China data outlook" by Grace Ng and Wang Qian, J.P. Morgan, December 2:
Financial markets have been increasingly concerned about the risk of a major reversal in China’s CNY policy … We believe it would be a very dangerous and wrong policy for China to devalue RMB … 1) The problem China is facing is a demand or income issue, not a pricing issue; 2) Going forward, China’s exports growth will continue to decelerate in any case. However, such an outlook cannot be changed by devaluation of RMB – a dangerous policy move that could set off a fresh new round of competitive devaluation in Asia … 3) Fundamentals certainly cannot argue for RMB devaluation, as China is still expected to have a sizable trade surplus in 2009 … 4) As China is still expected to maintain a sizable trade surplus with the US, an RMB devaluation … would certainly fuel a protectionist tide in the US and globally … [However] the risk of more USD/CNY fluctuations like we saw on Dec 1 cannot be ruled out.
From "China: Retail sales" by Sherman Chan, Economist, Moody’s Economy.com, December 12:
Prices are falling in China, so the retail sales data expressed in value terms are showing a corresponding slowdown … The relatively good news is that perhaps Chinese consumers have not cut down purchases in volume terms yet. Solid household expenditure is needed in the months ahead to offset weakness in the external sector … [But] unfavourable labour market conditions will weigh heavily on consumer sentiment … Retail sales may slump on a year-ago basis in early 2009 … Although middle-class households are still capable of spending, those who got burned in the stock and property markets have likely scaled back consumption … However, rural consumption is catching up thanks largely to an increase in government assistance. With favorable policies … retail sales may gain some much-needed support in the next few months.
From "How will China grow?" by Wang Tao, Chief China Economist, UBS Securities, December 9:
In the 1990s, Japan used continuous fiscal stimulus and saw its government debt surging quickly from 50% of GDP to over 100%, yet growth remained stagnant as corporate investment and bank lending did not follow through. Fortunately [China] is different from most other countries … it did not run up deficit and debt, and does not need to de-leverage. In fact, China has to re-lever as export demand weakens and corporate earnings decline … Quarterly data show that industrial profit growth … sharply decelerated in August, and we would expect overall profit to decline in the coming year … The government has already committed to increase its leverage by adopting the fiscal stimulus, with the extra spending financed by the issuance of more government bonds. However, the size of government spending is relatively small … To compensate for the fall in financing from corporate earnings, increasing leverage by the corporate sector and … increasing bank lending … would be critical.