China appears to be regaining strength

- "On Saturday China released economic data for August which exceeded expectations across the board. While GDP growth could still slow to below 7% q/q AR in Q3, the data released on Saturday suggest the Chinese economy is now bottoming out and is poised to improve in Q4."
- "In Q2 and Q3 growth has been pulled lower mainly by weaker construction activity and inventory cuts. We expect construction activity growth to remain substantially below trend well into 2011 as fiscal stimulus gradually unwinds. Private consumption increasingly looks like China’s new growth engine, although demand for consumer durables has temporarily slowed following the explosive growth last year. Inventory cuts are easing and this should add to growth in the coming quarters." 
- "Export growth has so far been resilient and China’s trade surplus has again improved above USD20bn on a monthly basis. However, we expect the trade surplus to decline in the coming quarters as exports to Europe and the US lose some momentum and China’s import growth improves." 
- "The impact on the property market from the government’s regulatory tightening now seems to have been less than expected. House sales started to recover in August and the expected large drop in property prices has so far failed to materialize." 
- "We do not find the increase in inflation in August from 3.3% y/y to 3.5% y/y alarming. With GDP growth currently below trend, inflationary pressure is easing; we expect inflation to peak in September and decline close to the government’s 3% target by the end of the year." 
- "The Chinese economy currently appears to be very close to where the Chinese government wants it. Hence, we do not expect any major policy adjustments this year. However, we still believe China is in a tightening cycle and, while interest rate hikes are probably off the table for the rest of this year, further regulatory tightening targeting the property sector looks increasingly likely." 
- "This latest economic news has made us more confident that China remains in a tightening cycle. In addition, exports have remained resilient, the trade surplus has improved and the effective CNY exchange rate has actually depreciated since China formally abolished the USD peg in July. With the political focus in the US returning to China’s exchange rate policy, we still expect CNY to appreciate." 
- "While, alone, signs of a soft landing in China should be reassuring for commodity markets, it is important to stress that the composition of Chinese growth now is less commodity friendly, because construction (and temporarily durable consumer goods) is growing below trend."

DenDanske Research China 20100912

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