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China economy surprisingly strong; policy intact
2009-09-11
BEIJING (Reuters) - Chinese industrial output and other economic data surprised on the upside in August, suggesting its recovery is on a solid course but not so strong that Beijing will need to hit the policy brakes anytime soon. Muzi.com News 10093299-1 (muzi.com) Asian shares edged up as the data supported regional recovery hopes, while the Australian dollar cut losses against the dollar and yen and oil prices rose above $72 a barrel. Muzi.com News 10093299-2 (muzi.com) The only weak spot in August's data was trade. Exports fell 23.4 percent from a year earlier, a sharper drop than expected and accelerating from July's 23 percent fall as global demand remained frail. Muzi.com News 10093299-3 (muzi.com) "Clearly, it shows the domestic economy is doing much better because of the (government) stimulus, and external demand is still quite weak," said Tao Wang, economist with UBS in Beijing. Muzi.com News 10093299-4 (muzi.com) "I don't think weakness in exports is going to derail the fact that the general economy will continue to recover." Muzi.com News 10093299-5 (muzi.com) Industrial output grew at a 12-month high of 12.3 percent in August from a year earlier, jumping from 10.8 percent in July and moderately beating expectations, data issued by the National Bureau of Statistics showed on Friday. Muzi.com News 10093299-6 (muzi.com) Investment growth also picked up a touch, and annual growth in the broad M2 measure of money supply rose to a record-high 28.5 percent. Muzi.com News 10093299-7 (muzi.com) Despite the signs of strength and the potential for mid-term inflationary pressures from such rapid liquidity growth, analysts expect policymakers to proceed cautiously and avoid pulling on the reins of monetary and fiscal policy too quickly. Muzi.com News 10093299-8 (muzi.com) Premier Wen Jiabao drove that point home on Thursday, saying the government would unswervingly apply its policy mix of massive government spending and loose money because the economic recovery remains fragile. Muzi.com News 10093299-9 (muzi.com) To see graphics on Chinese output and trade trends, click on: Muzi.com News 10093299-10 (muzi.com) http://graphics.thomsonreuters.com/099/CN_TRD0909.gif Muzi.com News 10093299-11 (muzi.com) http://graphics.thomsonreuters.com/099/CN_INDOT0909.gif Muzi.com News 10093299-12 (muzi.com) BROAD STRENGTH Muzi.com News 10093299-13 (muzi.com) "There's a pretty good configuration of data: on the activity side there is further strengthening and on the inflation side there is still negative inflation, so I don't think there's a real urgency to tighten policy aggressively," said Rob Subbaraman, chief Asia economist with Nomura in Hong Kong. Muzi.com News 10093299-14 (muzi.com) China's continuing strength and the hopes it has spawned for a regional recovery contrasted with relatively anemic data from Japan, which showed the economy grew by 0.6 percent in the second quarter, less than earlier estimates. Muzi.com News 10093299-15 (muzi.com) But not all analysts were convinced China should be looked to as an engine of global growth. Muzi.com News 10093299-16 (muzi.com) Stephen Roach, Morgan Stanley's Asia chairman, told Reuters that China was unlikely to lead the global economy out of recession because its own recovery lacks balance and is overly reliant on investment. Muzi.com News 10093299-17 (muzi.com) Continuing weakness in exports underlined the fact that China will have to continue to rely on domestic demand to drive growth in the coming months, even as the impact of the government's $585 billion stimulus package starts to wane. Muzi.com News 10093299-18 (muzi.com) Detailed figures suggested that private investment could be starting to take on more of a role in driving growth, even though government investment remains dominant. Muzi.com News 10093299-19 (muzi.com) Real estate investment rose 14.7 percent in the first eight months from a year earlier, compared with a low of 1 percent hit in the first two months, boding well for private spending. Muzi.com News 10093299-20 (muzi.com) Overall urban fixed-asset investment growth reached 33.0 percent for the first eight months, edging up from 32.9 percent in January to July. Muzi.com News 10093299-21 (muzi.com) Li Xiaochao, spokesman for the statistics agency, told reporters the August figures had laid a solid foundation for China to achieve its 8 percent growth target for this year. Muzi.com News 10093299-22 (muzi.com) "We can see from the figures that the recovery trend in the national economy is getting more apparent this year," Li said. Muzi.com News 10093299-23 (muzi.com) One of the biggest challenges policymakers may face down the road is the risk of inflation, as food prices have begun to rise from their year-earlier levels. Muzi.com News 10093299-24 (muzi.com) Food prices, which make up a third of the consumer price index, rose an annual 0.5 percent in August, resulting in a drop in overall consumer prices of just 1.2 percent from a year earlier, versus a decline of 1.8 percent in July. Muzi.com News 10093299-25 (muzi.com) The consumer price index rose 0.5 percent from July, the first month-on-month rise in six months. Muzi.com News 10093299-26 (muzi.com) For a graphic on price trends, see: Muzi.com News 10093299-27 (muzi.com) http://graphics.thomsonreuters.com/099/CN_CPPI0909.gif Muzi.com News 10093299-28 (muzi.com) BETTER COMPOSITION OF LENDING Muzi.com News 10093299-29 (muzi.com) However, lending data showed what should be a reassuring trend for policymakers: that credit is being channeled more into mid- and long-term loans as opposed to short-term bill financing, meaning more cash is likely being put into actual investments. Muzi.com News 10093299-30 (muzi.com) Bill financing actually fell 276.4 billion yuan in the month, while mid- and long-term loans increased by 548.1 billion yuan. Muzi.com News 10093299-31 (muzi.com) Altogether, new local-currency loans reached 410.4 billion yuan -- far from the average of about 1.2 trillion in the first six months, but up from July's 355.9 billion yuan. Chinese bank and property shares rose, encouraged by the data. Muzi.com News 10093299-32 (muzi.com) For a graphic on lending trends, see: Muzi.com News 10093299-33 (muzi.com) http://graphics.thomsonreuters.com/099/CN_LNDG0909.gif Muzi.com News 10093299-34 (muzi.com) A surge in bill financing early in the year fed worries about dangerous stock and property price bubbles, concerns that came to a head when credit slowed sharply in July, prompting a more than 20 percent fall in Shanghai shares in a matter of weeks (.SSEC). Muzi.com News 10093299-35 (muzi.com) No such worries were present after the latest data. The Shanghai index, which had been up 0.4 percent before the reports, extended the day's gains to close up 2.2 percent. Muzi.com News 10093299-36 (muzi.com) "Today's readings should be positive for markets from stocks to commodities," Ting Lu and TJ Bond with Merrill Lynch in Hong Kong wrote in a report. Muzi.com News 10093299-37 (muzi.com) "As growth becomes a lesser concern, macro policies will be gradually geared to carry out structural reforms, to dampen asset prices rallies, to safeguard China's financial system, and to contain a new round of consumer goods price inflation." (Additional reporting by Langi Chiang, Simon Rabinovitch and Charlie Zhu in Beijing and Susan Fenton in Hong Kong; Graphics by Catherine Trevethan and Claire Morel Muzi.com News 10093299-38 (muzi.com) (Editing by Ken Wills & Kim Coghill) Muzi.com News 10093299-39 (muzi.com)
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