China Market Perspectives - In search of the turning point

Table of Contents
China Overview ................................................................................. 3  
Key Themes ........................................................................................ 5
Economic Outlook ........................................................................... 13  
Fixed Income  Strategy .................................................................... 16
FX strategy ....................................................................................... 26
Credit strategy ................................................................................. 33  
CNH Market Monitor ....................................................................... 39  
Special  Report.................................................................................. 43
Chart Pack ........................................................................................ 44
CNH bond issuance and total return monitor ............................... 46  
Onshore fixed income monitor ....................................................... 47

In the key theme article in this edition, we discuss policy recommendations
relating to the roadmap for RMB internationalization and capital account
liberalization in China.

In the Economics section, we argue that  a visible recovery of IP growth is
unlikely in early Q3. The impact of poli cy easing may be felt from Sept-Oct.
The government will likely introduce  more growth-enhancing measures, but
unlikely to contain major surprises. Among the measures in Q3 we expect are
another RRR cut, another rate cut,  somewhat more aggressive window
guidance for bank lending to infrastructure projects, an extension of the VAT
reform to a few cities, and a possible  increase in the railway FAI budget.