From Morgan Stanley economist Denise Yam:
We remain convinced that China’s economy is slowing as investment comes under the pressure of overcapacity, rather than tighter liquidity. Rather, we expect this slowdown to be kept at a gradual pace by surplus liquidity and low interest rates. Economic data out of China, though subject to considerable skepticism regarding its credibility, suggest a gradual slowdown is underway since the peak in 1H04. We see Chinese authorities maintaining effective management of liquidity conditions through a combination of credit and exchange rate policies so as to achieve a soft landing. Because of the vast excesses created over the boom years, nevertheless, this gradual slowdown trend is expected to last throughout 2006 and further into 2007, in our view.
Full article here.