![]() Are we beginning to see investors more focused on the Basket of currencies versus the RMB rather than the US$ ? How sustainable is the Chinese upswing ? This week`s numbers will set expectations plus the numbers will be cleaner following the Lunar holidays. The Capital flight seems to be slowing as the currency stabilizes, a product of growth expectations and rising commodity prices. How much will Beijing forget to raise productivity and move resources out of inefficient areas, forget the reform of the SOE`s to meet the politically sensitive and all important growth target ? The balancing act includes the termination of some of or part of the SOE world but the counter is an increase in NPL`s and debt defaults and this will trigger credit tightening. There are bubbles in Shenzhen, Guangdong and Shanghai.what happens if the government continues with its measures to stimulate the housing market ? What eventually happens to bubbles ? For all this the government`s top priority is to sustain a grow rate above 6.5%. Seems wonderful but all very short term and old school Communist Party economics. A pick up in credit growth and a rebound in the property market have lead to a recent increase in investment and industrial activity. Beijing has introduced a number of measures to prevent the economy from stalling, the usual infrastructure investment plus fiscal expenditure and easing of home purchase restrictions. Soothing words but the enormous change that China is undergoing will cause damage to various parts of the economy and there will be social and even political costs. Premier Li Keqiang told us last week that the overall economic situation was better than expected and he was confident the government would be able to maintain medium to high speed economic growth. Expect GDP on Friday to fall from 6.8 to 6.7%. Yes and No, you have to add to this the the best handbag copying city and the cyber/tech stealing capital of the east. In Shenzhen the property market is booming and we are told this is the entrepreneurial heartland of China. Coastal cities and regions are strong and Shenzhen is booming. This again will lead to future growth issues. Inflation and Growth issues can also be seen as very geographical, not just because China is so large but because the old industrial regions of the North have negative GDP and issues with population flight. Tier 1 cities are booming and again are in bubble mode, Tier 2 and 3 are slower while Tier 4 and 5 are very weak and have huge inventory overhangs. Food inflation is higher and Property inflation is higher but the later comes with its own issues. Food prices are stronger but this alone will probably not stop easing given how the manufacturing sector is riddled with deflation. CPI is expected to come in at 2.5%, still below the PBOC`s 3.0% target but strong enough to slow the central bank`s injection of liquidity into the market. ![]() All eyes are focused on CPI on Monday, Trade Figures on Wednesday and GDP on Friday. March however did show signs of stabilization as both service sector and manufacturing PMI Indices showed signs of expansion. Trade figures were dreadful, showing the sharpest decline since 2008 and the continued weakness of global trade is a major threat to Beijing`s growth target. So far this quarter the numbers have been a hint mixed, Industrial Production and Retail Sales were weak at a time Infrastructure and Property investment was strong. The world`s financial community will focus on the upcoming Chinese economic data this week.
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