China posted annual economic growth of 10.7% in the fourth quarter of 2009, and Morgan Stanley is among the forecasters pencilling in an even higher figure for 2010 as a whole, amid surprisingly good exports and big domestic stimulus measures.

"We have revised up our forecasts for China's GDP growth and inflation in 2010 to 11% and 3.2% respectively, primarily to reflect an external outlook that will likely turn out to be stronger than we originally envisaged," Qing Wang, an analyst at Morgan Stanley, writes in a research note.

Wang, one of the note's co-authors, says that "effective depreciation of the renminbi exchange rate" may be a factor in what he described as a "remarkable recovery in exports".

"We estimate that the renminbi trade-weighted exchange rate has depreciated by nearly 6% since the end of March 2009 [to early February 2010], as the currencies of China's main trading partners have appreciated against the US dollar substantially, while the renminbi remains pegged to the US dollar at around the rate of 6.83," Wang says.

Morgan Stanley expects Chinese export growth in 2010 of 15%. It argues that better exports would boost economic activity primarily by encouraging private investment in the manufacturing sector.

The outlook for domestic demand in China is also reasonably good, according to the American bank.

"The bottom line is that we expect monetary and credit conditions to remain supportive of the real economy this year," Wang says.

"Moreover, private consumption is likely to show steady improvement through 2010 as consumer confidence and employment continue to improve."

The bank estimates that new loans in China in 2010 could amount to Rmb7.5 trillion (pound 730 billion).

In addition, up to Rmb1.5 trillion of loans made in 2009 have yet to be utilised, indicating that the "effective amount of new bank lending in 2010 could amount to Rmb8.5-9.0 trillion, versus Rmb8.0 trillion in 2009".

Wang and his colleagues at Morgan Stanley also expect a "normalisation" of policy conditions from loose levels in 2009.

They say that "an early policy tightening should help lower the risk of overheating and prevent a boom-bust cycle".

Other analysts argue that China's economy is at risk of a sharp slowdown.

Morgan Stanley says that "we project that the year-on-year [economic] growth rate is set to peak at 11.7% in [the first quarter of 2010], before slowing down... towards a more sustainable high- single-digit level".

"The moderation in growth rate over the course of 2010 would reflect acceleration in private consumption and investment, as well as a recovery in exports, partly offset by a smaller dose of policy stimulus," the bank adds.

It expects borrowing costs to go up in 2010, and predicts that the Chinese authorities will scrap the de facto renminbi-dollar peg this year.

"While higher growth and inflation make a stronger case for renminbi appreciation, we maintain our call that an exit of the renminbi from the US dollar peg will take place in 2010, but not likely [in the first half of the year].

"This is because it takes time to build consensus, given that any potential move would be tantamount to a regime shift instead of a fine-tuning policy. At the same time, we would be surprised if the current de facto US peg regime remains intact beyond November 2010."