Emerging Markets Weekly

Data released this week confirms a near-term bottoming phase in China's economy. The GDP data marks the point that US$586-billion stimulus package and aggressive lending policies are achieving their desired results.



Fixed asset investment growth increased at a 28.6% pace in the latest quarter representing a substantial pickup in activity from last year. The bulk of this activity is direct consequence of official policy that is geared toward infrastructure investments.



Lending activity has increased at a torrential pace in the first quarter of 2009 a clear sign that the change in policy direction is being felt in the real economy unlike in the developed world where flooding of bank reserves by central banks is not leading to increased lending. More than 90% of intended lending for 2009 was reached in the first quarter alone suggesting that things are progressing in the loan department too quickly and may have to be reigned in later this year.



The data confirm that China's economy has clearly bottomed and is the first to emerge from the global economic recession. The government will continue to pump life into the domestic economy until a broad based global economic recovery takes hold. There is no telling when this might happen, and it is quite possible that more stimulus measures could be announced late in 2009 or early 2010.

We have been highlighting China's better prospects for growth over any other country in the developing world for several months now and continue to believe that the authorities have the wherewithal to maintain economic growth despite severe headwinds in the global economy.