>CHINA MACRO STRATEGY: SINOLOGY (CLSA)

A wild ride

Incremental tightening ahead

Key Points
■ Consumption is the top investment theme
■ Residential property market will stay healthy
■ CPI should average 3% this year
■ Gradual renminbi appreciation to resume by mid-year
■ GDP growth about 8-9% in 2010
■ Key risks: government policy; 2H margin squeeze; big US recovery

First in, first out
Looking back, it is clear that that China began to slow long before the US went into recession (officially in December 2007) and long before Chinese export growth plummeted.

China began to slow at least two quarters before the US because the slowdown was deliberately self-inflicted by a Communist Party leadership worried about overheating.

In mid-2007 Beijing cut off credit flows to two key sectors: construction and real estate, which combined account for about 10% of GDP - a larger share than contributed from net exports (6-8% prior to last year’s collapse).

This self-inflicted slowdown then ran head into the global recession, accelerating the rate of China’s economic decline.

To read the full report: CHINA MACRO STRATEGY