Economic activity is picking up, driven by the extensive fiscal programs pushed by the government and by the surge in bank lending.
Government is expanding employment in public works projects as an offset to contracting exports and light industry which are traditionally more labor-intensive than public works.
These stimulus efforts come at the cost of the efficiency of the economy and will need to be rolled back.
At the same time, the massive infrastructure projects should have lasting benefits complementing future private investment.
Externally, China is concerned about the value of its foreign currency holdings which are largely still in dollars.
Shifting to yuan financing for trading partners solves the problem of the accumulation of foreign currencies, while still acquiring foreign assets.
China, though, is increasing its exposure to credit risk in exchange for lower fx risk.
Internationalizing the yuan will ultimately need capital account liberalization that will complicate domestic monetary policy.
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