J.P. Morgan: China's economic recovery is accelerating

China Internet News January 21, 2010 morning, the Bureau of National Statistics director Jiantang released 2009 National Economic operation, the annual GDP of 33.53 trillion yuan, an increase of 8.7%.　　China's economic recovery is accelerating, with 2010 growth likely to exceed 2009 years, said Jing Ulrich, chairman of China Securities and Commodities at JPMorgan. 2010 's economic growth may exceed 2009 Ms Ulrich said year-on-year GDP growth in the 4th quarter of 2009 was accelerated to 10.7% in the 3rd quarter and 8.7% per cent for the year, exceeding the government's official target of 8%. The latest economic data show that China's economic recovery is accelerating, and December export growth rebounded sharply to 17.7% per cent a year.　　This is also the first month of annual positive growth in exports since October 2008. "2010 Years of economic growth may be more than 2009 years," Ms Ulrich said, but this year's investment growth will continue to slow as the government strengthens restrictions on new public investment projects.　　Headline GDP and export data should remain strong for the 1th quarter of 10, given the low base last year, but inflationary pressures will become more pronounced after the deflation of 2009 2 to October. The government is now confident in the domestic economic outlook and has embarked on a reduction in some of its stimulus policies, in contrast to the stimulus that was taken to prevent a recession a year ago. However, given the risk of recovery, exit strategies should be carried out in a step-by-step manner. Given the sluggish external demand last year, the goal of boosting private consumption has assumed a new mission, and the Government appears to be continuing to implement the various consumer stimulus policies launched in 09.　　Still, some policies have been adjusted to address overcapacity and asset bubbles. Ms Ulrich believes that as the housing bubble problem heats up and policymakers release strong signals to tighten restrictions on new infrastructure investment projects, bank lending is expected to slow down to a more sustainable level, while further tightening of credit in specific sectors will become more pronounced in the middle of the year.　　Although the government intends to curb the rise in housing prices, but also attaches great importance to the real estate industry's sound development, because it is related to consumption and employment growth. The central bank is likely to tighten policy gradually in the first half of 2010, mainly through administrative measures.　　　　Worries about hot money inflows and export growth will limit the rate hike, but we expect bank lending to slow and central banks to use reserve requirements to manage the money supply. The production price index (PPI) was also in inflation in December, with the consumer price index up 1.9% per cent year-on-year, and November with a year-on-year increase of 0.6% in inflation.　　The production price index (PPI), which fell 2.1% from a year earlier in November to a 1.7% increase in December, says the PPI is also in inflation. Ms Ulrich said China had made clear in the weeks of early 2010 that after record growth in bank lending last year that it would pickTake a cautious approach to resisting inflationary pressures. To the surprise of the market, the central bank raised the yield on 3-month and 1-year bonds and raised the bank's reserve ratio by 50 points, earlier than the market had expected. The Chinese government now notes that the rapid increase in the money supply is the result of rising CPI.　　While recent policies suggest that the central bank is likely to be more popular than aggressive interest-rate adjustments, such as faster control of price pressures, open market operations and administrative measures (especially banking and property sectors), concerns about capital inflows will limit the rate hike. While expectations of CPI inflation in 2010 were milder than the sharp inflation of 2007-2008, the risk of an unexpected spiral of food prices and commodity import spending could change that. Extreme winter weather in north China has disrupted transport networks, pushing up the price of industrial coal and some agricultural products.　　While rising commodity prices are putting upward pressure on prices, overcapacity in industrial production should limit the ability of manufacturers to pass on raw material cost growth to consumers. In recent months, international prices for major energy and mining commodities have risen and bad weather has been pushing up the PPI.　　　　The purchase price index, an integral part of China's official manufacturing Purchasing managers index, rose from 63.4% in November to 66.7% in December. The December industrial production index rose 18.5% in December, with the industrial production index rising 18.5% per cent year-on-year, as manufacturing activity responded to strong domestic demand and a resurgent external environment.　　The December rally was the seventh consecutive month of double-digit gains for IP, and JPMorgan experts are expected to maintain the current pace of growth in the near future, consistent with the continued gains in the Purchasing Managers ' index (which rose 1.4% to 56.6 in December). The increase in electricity consumption reflects the steady pace of industrial activity in China, which grew by 26.9% in November, compared with 17.1% in October, marking the 6th consecutive month of year-on-year positive growth.　　Exports also improved in December, up 17.7% per cent year-on-year, thus further proving that the momentum for economic growth is widening. Recent consumer-related indicators indicate strong end-user demand for industrial products in the domestic market.　　Partly because of government support, China overtook the US as the world's largest car market in 2009, with sales of 13.6 million cars, up 45.5% from 2008. The preferential tax rate for motor vehicle sales in 2010 will be adjusted to 7.5% (up from 5%), while agricultural vehicle upgrades and old-car scrapping subsidies will be issued.　　The Chinese auto industry association expects car sales to increase by 10% in 2010 to 15 million vehicles. China's home appliances/electronics Stimulus program has been postponed and expanded to more areas (from 2009 to only 9 cities/provinces). 2009, with the government "to replace the old" purchase measures related to home appliances sales amounted to 14.1 billion yuan, accounting for home appliances sales total20% of the amount. China's demand for major building materials has soared in recent months, with strong demand for consumer goods and a growing number of property construction activities.　　In November 2009, 47 million tonnes of apparent steel consumption rose by 34% compared with the average monthly consumption of 37 million tonnes in 2008. China's fixed asset investment rose 30.5% in 2009, compared with January-November year-on-year growth of 32.1%, while China's fixed asset investment (FAI) growth slowed to 30.5% per cent in the 09 fiscal year. Strong credit growth last year and a surge in public sector spending – especially in new infrastructure projects – are essential to a strong economic rebound in recent quarters.　　FAI has continued to grow as property construction recovers, although progress in construction activity has slowed in many provinces in north China after winter. Real Estate construction – The 1/4– of FAI is rebounding strongly (a 44.9% increase in building construction projects in November). Rising property prices and worries about speculative demand have prompted the government to raise the cost of property speculation and to shrink some of the measures that began in 2009.　　For example, the business tax exemption period was restored to 5 years, and the proportion of land purchase was increased to 50% per cent and the banks had been instructed to insist on a down payment requirement of 40% per cent of the second suite mortgage loan. In recent months, as housing investment in the property sector has picked up, JPMorgan is predicting that a rise in the supply of new homes will slow the pace of recent price rises. The overall FAI will continue to decelerate this year as new investment projects in government departments are more tightly controlled, with emphasis on completing the completed projects. (Huayan from Beijing)