China Industrial Output Tops Forecast as `Robust' Demand Aids World Growth

By Bloomberg News - Sep 11, 2010 6:01 PM GMT+0200

China’s industrial output rose at a faster pace in August than analysts estimated, signaling the world’s third-biggest economy is maintaining momentum as growth moderates.
Production gained 13.9 percent from a year earlier, more than the 13 percent median estimate of 29 economists, a statistics bureau report showed in Beijing yesterday. Consumer prices jumped 3.5 percent, the most in 22 months, as food costs climbed. Retail sales increased 18.4 percent.
The data suggest domestic demand is withstanding curbs on bank lending and government crackdowns to cool the property market and meet energy and pollution targets. Bank of America- Merrill Lynch forecasts gross domestic product will expand at least 9.4 percent this quarter and 9 percent in the final three months of the year, aiding the global recovery as elevated unemployment caps U.S. growth.
“Domestic demand is robust and the Chinese economy is heading for a smoother and softer landing than people had feared,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch.
The consumer-price gain matched the median forecast in a Bloomberg News survey of 31 economists, and compared with 3.3 percent in July and the government’s full-year target of 3 percent. Morgan Stanley economist Wang Qing said inflation is likely to “edge down slowly for the rest of the year.”

Deposit Rates
Inflation is 1.25 percentage points higher than the benchmark one-year deposit rate, encouraging savers to shift money into assets such as real-estate and adding to public concern about rising prices.
Australia and New Zealand Banking Group Ltd. said yesterday China should gradually “normalize” interest rates, initially raising the deposit rate. Credit Suisse AG economist Tao Dong said that while he favors higher rates, policy makers may make no “imminent” move, preferring to support growth.
China is poised to replace Japan as the world’s second- biggest economy this year after reporting a larger GDP in the second quarter.
Urban fixed-asset investment grew 24.8 percent from a year earlier in the first eight months of 2010, the statistics bureau said yesterday. That compared with a 24.9 percent gain for January-through-July. Producer price inflation slowed to an annual 4.3 percent pace from 4.8 percent.
“This is a positive set of data which shows the economy has ended its deceleration,” said Stephen Green, Shanghai-based head of China research for Standard Chartered Plc.

Money Supply
In a separate statement yesterday, the central bank reported August new loans of 545.2 billion yuan ($80 billion) and a 19.2 percent increase in M2, the broadest measure of money supply. Both numbers were above economists’ estimates. The rebound in M2 growth was the first in nine months.
Trade data released on Sept. 10 signaled strength in Chinese demand, with imports in August jumping 35 percent from a year earlier, more than economists forecast. Last month also saw gains in property transactions and in auto sales, led by SAIC Motor Corp. and FAW Car Co.
The economy expanded 10.3 percent from a year earlier in the second quarter after an 11.9 percent gain in the first three months of the year.
The Shanghai Composite Index has rebounded 12 percent from this year’s low on July 5 on speculation that the government may ease tightening measures, which range from restrictions on house purchases to a 7.5 trillion yuan ($1.1 trillion) annual limit on new lending by banks.

Five-Year Plan
Industrial-output growth may average 10 percent in the second half as the government chases energy-efficiency targets in a five-year plan, the Ministry of Industry and Information Technology said Sept. 7.
The ministry also cited risks to export demand, efforts to cool the property market and a limit to growth due to comparisons with higher year-earlier bases.
In China’s north, Hebei, the nation’s largest steelmaking province, is demanding that producers such as Tangshan Iron & Steel Group and Shougang Corp. curb output to save energy, according to a local-government website. Crude steel output fell to a six-month low last month, the statistics bureau said yesterday.

--Sophie Leung, Li Yanping, Paul Panckhurst, Zhang Dingmin, Huang Zhe, with assistance from Jay Wang. Editors: Paul Panckhurst, Nerys Avery.