CHINA’S ECONOMY:ENTERING TROUBLED WATERS?

Oscar Monterroso Chief EconomistCentral Bank of Guatemala May 9, 2008

China´s Rapid Growth Finally Ignites Overheating?

Source: Global Insight

China´s Liquidity Growth Remains High Despite Rate Hikes

Source: Global Insight

Excess Liquidity Has Not Yet Pressured CPI Inflation …

Source: Global Insight

… But Has Inflated the Asset Markets

Source: Global Insight

Price Control Has Kept China´s Domestic Energy Prices Long Under International Prices

Source: Global Insight and Bloomberg

Exports to U.S. Main Drag on Recent Chinese Export Growth

Source: Global Insight

Chinese Export Outlook Depends on Whether the U.S. Will Drag the Global Economy

Source: International Monetary Fund

U.S. Recession Impactful on Chinese Exports

Source: Consensus Forecast

Economy could get squeezed domestically and externally. Monetary policy tightening has started Exports to the U.S. already slowing

Policy dilemma – exports and investment/inflation in different phases of cycle and require countering policies.

Without inflation risk, Beijing is willing to continue loose monetary policy to cushion the impact of sliding exports.

Inflation is key!

Conclusion

May, 2008