Turning around?

From "China: Producer Price Index" Sherman Chan, Moody’s Economy.com economist, February 10:

It is unlikely that the authorities will allow the currency to rise. A stronger yuan could create unrest among struggling exporters [that] fail to recognize that their disappointing recent business performance is almost solely attributed to a slump in global consumption … A marked depreciation … is also not justified, as it would anger trade partners. Thus, in coming months the currency is expected to remain steady and have little influence on overall price change. There may be upward pressures on producer prices during the second half of the year, as massive infrastructure projects gather momentum … Once the industrial sector receives some solid support later in the year, the decline in producer prices will slow or even stop.

From "Clearing the froth in China’s credit growth" by Wang Tao and Harrison Hu, UBS economists, February 12:

Banks are increasing medium- to long-term loans to infrastructure related projects as well as bill financing to provide liquidity to the real economy. This is a positive sign for the economy as a whole and we continue to expect that it would help China’s economy to stabilize and rebound. We see new lending … to rise by more than 16% in 2009 … We do not think it is either likely or necessary for lending growth to be sustained at the current pace. Further, since much of the new credit has been in the form of bill financing, and we have no evidence that new lending is to fund capacity expansion in the troubled sectors, we think that credit risks of this new lending to banks could be limited. However, banks may be facing rising pressure to expand their loan books to compensate for the narrowed margins.

From "China in 2009: A bumpy road to growing 8.0%" by Lu Ting and TJ Bond, Merrill Lynch economists, February 10:

A negative export growth has less impact on growth than commonly perceived … China’s massive US$2.0t FX reserves and low public debt (18.5% of GDP) will allow the government to aggressively and swiftly pursue fiscal and monetary stimulus programs. We expect the government to run a deficit equivalent to 3% of GDP in both 2009 and 2010 … the fiscal stimulus plan could add 300bp to growth in both 2009 and 2010 … The government continues to play a key role in China’s economy … The value-added of industrial state-owned enterprises declined to 33% in 2008. However, 33% is still a large number [and] SOEs account for 40% of urban fixed investment … [But] the worsening domestic property downturn could drag down aggregate demand and delay the recovery.