China Economic Outlook

Conclusions:
– While CPI inflation is close to the end of its up-cycle, it is likely to remain above 4.5% YoY throughout 3Q11.
– Meanwhile, economic growth has slowed as a result of the tightening policies.
– If tightening policies are not loosened by 3Q11, property and infrastructure investment could decline in 4Q11.
– As CPI inflation is likely to remain elevated until 4Q, the chance of policy loosening in 3Q11 seems low.
– Considering the long lag between policy implementation and its impact on the real economy, the policy
dilemma and inertia with regard to policy loosening increase the risk of an economic hard-landing in 2011.