Fourth-quarter fears

Tommy Xie, an OCBC Bank economist, said the central bank will keep its foreign-exchange and interest-rate policies consistent with first-quarter economic indicators. He expects the Chinese yuan to remain stable for the next few quarters.

"The latest signs of recovery in China's leading economic indicators have limited the possibility of an outright yuan depreciation," Xie said.

On the interest-rate front, the latest pickup in yields on China's bills and bonds suggests less possibility of further easing of interest rates.

Economists, though, caution that rapid economic growth stoked by central-government investment won't be sustainable.

"The best scenario for China is that private investment starts to catch up with public investment in the second half," Xie said.

China's domestic demand is viewed as critical for any rebound in private investment as forecasts for Western economies remain poor.

Some economists expect a U-shaped or even W-shaped recovery in China's economy though some optimists said the first-quarter data are a prelude to a V-shaped recovery in the second quarter.

OCBC's Xie said the risk for the Chinese economy is that growth may slow again in the fourth quarter after picking up in the second and third quarters, if the onus for growth doesn't shift to domestic demand.

Some analysts think China may announce a second stimulus package though that idea lost some steam after the first-quarter data were released.

Xie said he thinks it more important for China to focus on implementing the first stimulus package before a second one is contemplated.

(Shanghai Daily April 27, 2009)