China's economy is at risk of overheating as liquidity floods the financial system, and...

CHINA'S ECONOMY IS AT RISK OF OVERHEATING AS LIQUIDITY FLOODS THE FINANCIAL SYSTEM, AND THE GOVERNMENT'S POLICY FOCUS WILL SHIFT TO FIGHTING INFLATION IN THE SECOND HALF OF 2013, SAYS JING ULRICH OF JP MORGAN. SHOWS: HONG KONG, CHINA (February 19, 2013) (REUTERS - ACCESS ALL) JING ULRICH, MANAGING DIRECTOR & CHAIRMAN OF GLOBAL MARKETS FOR CHINA, JP MORGAN 1. REPORTER OFF CAMERA SAYING: "What are your concerns for CEOs from China & how are you advising them?" 2. JING ULRICH SAYING: "Well, you know, the Chinese corporate leaders are quite upbeat about the prospects for 2013. The economy has experienced a rebound. The rebound now is really quite across the board across many different industries. But right now, I'm just mentioning to corporate leaders and investors that they need to be aware of the risks. The economy's rebounding, which is very good news. However there are some risks of overheating. We have a lot of liquidity in the financial system. Bank lending growth is very strong. Total society financing is reaching record amounts. That's one of the reasons why the economy is experiencing the current rebound. But sometime down the road - maybe six months, nine months from now - we could experience some overheating especially if inflation begins to increase." 3. REPORTER OFF CAMERA SAYING: "The Chinese government's focus has shifted to inflation rather than slowing growth. How soon do you think the central government will take action to control property prices?" 4. JING ULRICH SAYING: "In fact, that policy hasn't been so clearly articulated. I think at the current time, the government is quite happy to see the economic rebound because in the 2012 year, the situation was quite tough, especially in the second quarter and third quarter. As the economy was decelerating, we were beginning to worry about a potential hard landing in the economy. Now that the hard landing risk has dissipated, the economy's recovering. That's very good news. However right now, as I mentioned before, you have a rapid increase in bank lending, rapid increase in liquidity in the financial system. Inflation will eventually come back. So I think in the second half of 2013, the focus of policy will begin to shift to inflation, fighting inflation." 5. REPORTER OFF CAMERA SAYING: "The A-share market has been in lackluster performance since the Lunar New Year. What's keeping investors from buying up stocks?" 6. JING ULRICH SAYING: "Well the Chinese A-share market went up a lot in January - actually since December. So the increase was over 20% from the December lows. Now after Chinese New Year when everyone's returning to the market, some participants are a little bit disappointed about the lackluster performance in the A-share market in the last 2 days. I think one of the reasons is that the investors are watching for more government policies, more concrete policies to boost market sentiment. Also we have a new earnings season coming in sometime in March. Some of the companies could be delivering disappointing profits. So at the present moment, I think there's a bit of profit taking after the very strong performance we saw in the last 6 weeks. Nothing out of the ordinary. But importantly for the Chinese A-share market to maintain the momentum, the upward momentum, we need more policies. We need more supportive measures. We need better corporate governance. We also need a lot more institutional participation in the Chinese domestic stock market."