I have to disagree, where is all this bearishness coming from?
Some reactions on today's China data:
The Chinese economy is not slowing as planned, or desired, with GDP expanding 9.7% year-on-year in the first quarter to 9.63 trillion yuan. The strong economic performance through Q1, despite the myriad tightening measures put in place over the past six months, should give policymakers confidence to more aggressively attack inflation and its root causes. Indeed, with CPI jumping to a 32-month high, it is not hard to argue for further tightening. (Alistair Thornton and Xianfang Ren, IHS Global Insight)
Both 1Q11 GDP growth and March CPI inflation were above street consensus... Our overall assessment is that economic growth is stable and robust, but inflation pressure is elevated (though definitely not out of control). The next peak of inflation will likely be in June at 5.5%-6%. The government raised tone on inflation-fighting, but also issued warning on over-tightening. Regarding market impact, most major data were leaked in the past two days, so informed investors should expect no shocks. Overall, we think investors should remain cautious as the Chinese government itself sees many uncertainties ¦ CPI dropped 0.2% MoM in March due to seasonality. Usually it should drop more in the post-(Lunar New Year) holiday time from February to March, and that's why policymakers are a bit nervous about inflation pressures and they raised tone on inflation fighting this week. (Lu Ting, Bank of America-Merrill Lynch)
Not much of a surprise in the data, though the activity numbers are perhaps a little stronger than expected, with little evidence to date that rate hikes, a stronger currency, and higher oil prices are having much of an impact on growth. Inflation of course, is the main issue in the short term. We think price pressures will ease in the second half of the year, but there is still more upside in the next few months, and the risk is that high oil prices will keep headline inflation stronger for longer. This also suggests that policy rates still need to move higher in the months ahead, with Beijing also likely to favor further currency appreciation to help get inflation lower. (Brian Jackson, Royal Bank of Canada)
China's inflation has been running at a high level for more than a year due to the post-financial crisis expansion of money supply, the rise in agricultural prices, the gradual feed-through of wage growth, and the impact of rising global commodity prices. Chinese policy makers are using a multi-pronged approach to curb inflation, including monetary tightening, administrative measures and accelerated currency appreciation. ¦ The exchange rate has played only a secondary role in China's policy arsenal. However, last week, Premier Wen indicated that China will use all possible measures, including the yuan exchange rate, to keep prices under control. This constituted the first time the premier had publicly referenced the yuan's exchange rate as a mechanism to counter inflation. (Polly Leung, J.P. Morgan)
There was clearly a rebound in domestic demand growth in March, which was driven by the loosening of monetary and fiscal policies as reflected in stronger M2 growth. Such a rebound tends to increase inflationary pressures amid the continued strength in external demand growth and requires further tightening measures. Having said that, despite the loosening in March, the overall policy stance in 1Q2011 was still tighter than it was in 4Q2010 which led to the moderation in sequential activity growth and inflation in 1Q2011 from 4Q2010. (Yu Song and Helen Qiao, Goldman Sachs)
