• Partial indicators for April were disappointing across the board relative to optimistic market expectations, but we remain happy with our longheld views for China’s growth outlook. Slowing activity has been driven by both an easing in domestic demand, and weak external demand – global economic uncertainty, particularly in Europe, is likely to provide an ongoing drag on the economy. The property market continues to weaken in response to the government’s curbs on property.
• Although we believe China can still engineer a soft landing in the near-term, our expectations of only a moderate slowing in growth for the current quarter is looking a little less certain. Nevertheless, recent policy stimulus – including a 50bp cut to reserve requirements (RRR) – should help to support growth later in the year. More policy loosening will be needed to achieve our GDP growth expectation of around 8 per cent in 2012 and 2013, consistent with potential.
• Our expectations for policy loosening include two to three cuts in the RRR in 2012, and one cut to the lending rate later in the year (contingent on CPI inflation falling below 3 per cent).

For further analysis download the full report.

• China Update – May 2012 (PDF, 282kb)