The latest data for October shows that the country’s industrial production and trade surplus grew robustly, indicating that its recovery is picking up even more steam. Industrial output grew 16.1 percent on a year-on-year basis, the sixth straight month of accelerating growth. Through the first 10 months of the year, China’s industrial production has increased 9.4 percent compared to 2008, including growth in all industrial sectors. Meanwhile, the country’s trade surplus nearly doubled to $24 billion sequentially from September as exports continued to pick up.

But it’s not just exports driving China’s growth. Retail sales in October more than 16 percent better than 12 months ago. Auto sales, in particularly, jumped 72 percent year-on-year, thanks to government backing.

The world’s third largest economy has so far avoided inflation, despite a tremendous growth in its money supply. The country’s consumer price index, according to the state’s official statistics bureau, fell 1.1 percent (on an annual basis) through the first 10 months of 2009.

While banks have lent record amounts of money by far this year, the sum of new consumer loans in the month was also nearly halved on a sequential monthly basis. This could be the reflection of the beginning of the government tightening – it has been reported that measures to limit the use of debt in real estate speculations are being considered. Chinese officials have also indicated that they intend to tighten lending terms after the equivalent of $1.31 trillion has been lent out so far this year thanks to unprecedented loose monetary policy.

The Chinese government also appears to be fully aware about the danger of bubbles in the real estate and stock markets given the record amount of stimulus. Considering the amount of control the government has over the economy and the quick effectiveness with which it dealt with the recession, we think China should be able to address potential problems without significant disruptions to its growth

China’s renminbi (also known as the yuan) is pegged to the U.S. dollar, and as a result it has been falling in relation to other major currencies. With China’s economic strength, international pressure to let the yuan appreciate is mounting. Previously firm on its intent to keep the yuan “stable,” China’s central bank stated in its latest quarterly report that it will consider the flow of international capital and currencies. The change in language leaves the door open for the possibility that the Chinese government could allow the yuan, at least gradually, to float more freely. A more expensive yuan could affect foreign investment and tip the trade balance more to other countries’ favor, but we doubt China would unpeg the yuan unless it believes that its economy was strong enough to absorb any negative impact that may arise from this action.

Like China, India is another nation early to emerge out of the recession. It’s already considering withdrawing government stimulus in light of its strong recovery. The country’s Prime Minister, Manmohan Singh, recently announced that India’s economy is expected to grow 6.4 percent in the current fiscal year, ending March 31, 2010, and that the withdrawal of fiscal stimulus could begin in April of next year to combat a couple of the stimulus’ side effects.

In response to the global credit crunch, the Indian government has increased spending and reduced taxes on consumers and imports at the expense of building up the national deficit and inflation. Unlike in China, inflation in India may reach 6.5 percent by the end of the fiscal year, and the national budget deficit is forecast to reach 6.8 percent of GDP for all of 2009. That’s not much by U.S. standards, but it’s a 16-year high for India. India’s central bank has already begun to tighten monetary policy, raising the liquidity ratio requirement and India appears ready to be among the first G20 nations to cut back on stimulus actions.

China and India’s positions, contrasted to the group opinion expressed by the G20 nations and the I.M.F., who reiterated the need to keep stimulus actions steadfast despite signs of stabilization and recovery, highlight the difference in economic health between growing and mature economies. While developed nations limp toward a fragile recovery, emerging markets with plenty of room for growth are sprinting across the finish line, with recovery reasonably assured. If nothing else, the global recession has underscored the importance of up-and-coming economies on the world stage.

Republished from http://www.etfworldalert.com/