Greater China: Issues in Focus

- China: Moderation Continues "Against the backdrop of the authorities’ redoubled efforts to shut energy-inefficient production units, industrial production growth continued to moderate due to intensified supply-side adjustment. While fixed-asset investment growth saw a further slowdown, tailwinds (e.g. loosening of controls on new projects, aggressive implementation of the social housing program, easing in local government financing) have now appeared. We also expect the Chinese authorities to allow a faster appreciation of the RMB against the USD given the rising political pressure and the prospective large trade surplus in 2H10 compared to 1H10. Given the heightened uncertainties, we have launched the China Macro Risk Radar (CMRR) to provide a framework to systematically assess and monitor risk events of low probability but potentially high impact."
- Hong Kong: Robust Growth and Capital Inflow "The Hong Kong economy sustained robust growth in 2Q10 with real GDP expanded 6.5% YoY. We now expect GDP to grow 6% and 4% in 2010 and 2011 respectively. The Hong Kong banking system saw a significant increase in RMB deposits in July without hurting the growth of HK$ or other foreign currency deposits, signaling a genuine expansion in the banking sector balance sheet upon the further development in the offshore RMB business. We also observed capital inflow in July, and fundamentally the stock of excess liquidity in the banking system still remained sizable, offering little upward pressure on interest rates."
- Taiwan: 2Q GDP Beat Expectations by Wide Margin "Taiwan’s GDP expanded 12.5% YoY in 2Q10, driven mainly by an upside surprise in private consumption growth which should increase the overall economy’s resilience in the event that external demand faces any uncertainties. With the economy expanding faster-than-expected, we believe that interest rate normalization will continue for the rest of the year. We expect two more rate hikes in 2H10 (+12.5 bps each) to bring the policy re-discount rate to 1.625% by year-end."

Morgan Stanley Greater China Economics 20100906

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