China Recovery Quickens as Production, Lending Climb (Update3)

By Bloomberg News
Sept. 11 (Bloomberg) -- China’s industrial production rose more than forecast in August, lending unexpectedly climbed and retail sales advanced, indicating growth in the world’s third- biggest economy is likely to accelerate.
Output at the nation’s factories gained 12.3 percent from a year earlier, the most since August 2008, the statistics bureau said in Beijing today. Local-currency new loans were 410.4 billion yuan ($60 billion), up from 355.9 billion yuan in July, the central bank reported.
Chinese shares rose as today’s figures showed that stimulus efforts are more than compensating for a collapse in exports, which dropped further in August. At the same time, faster credit growth may stoke concern about asset-price inflation. Bank of China Ltd. Vice President Zhu Min yesterday warned liquidity may cause "bubbles in commodities, stocks and real estate."
"Policy stimulus is driving the recovery and China is poised to get more support from exports in coming months," said Brian Jackson, Hong Kong-based senior strategist for emerging markets at Royal Bank of Canada. "That will give growth an extra push and allow policy makers to ease back on stimulus early next year."
The Shanghai Composite Index closed 2.2 percent higher, helping pare losses last month that were stoked by concern about a slowdown in new lending from a record $1.1 trillion in the first half. The index is up 64 percent this year.

Stimulus Spending

Premier Wen Jiabao pledged yesterday to sustain stimulus measures to secure the recovery, saying the rebound "is unstable, unbalanced and not yet solid." Speaking at a conference in Dalian, northern China, he said "we cannot and will not change the direction of our policies when the conditions aren’t appropriate."
Economists had forecast an 11.8 percent gain in industrial production, according to the median of 15 estimates in a Bloomberg News survey. New loans were projected to total 320 billion yuan, a separate survey showed.
Retail sales climbed 15.4 percent in August from a year before, the most for the year after accounting for seasonal distortions caused by the lunar new year holiday, statistics bureau data showed today. The median estimate was for a 15.3 percent advance.

Regional Impact

China is poised to help stoke growth throughout the Asian region, said Gail Fosler, president of the Conference Board, a New York-based research group. "China is much more of a factor in Asian growth than is the U.S.," Fosler said at a conference today in Singapore.
Figures from Japan today showed the region’s largest economy grew less than estimated in the second quarter. Gross domestic product rose at a 2.3 percent annualized pace, less than the 3.7 percent previously calculated.
In China, the quickening expansion follows a 4 trillion yuan stimulus package, record lending and a rebound in property investment and sales that have countered a slump in the nation’s exports. Trade data today showed shipments abroad fell a more- than-estimated 23.4 percent in August from a year earlier, the biggest drop in three months. Exports rose a seasonally adjusted 3.4 percent from July.
Economists anticipate China’s GDP growth will accelerate to a 9.5 percent pace next year after an 8.3 percent rate in 2009, according to a Bloomberg survey of economists conducted the week ended Aug. 28.
"The biggest challenge now is how to guide monetary and credit policy to a prudent level without impacting the property and stock markets and the economic recovery," said Isaac Meng, a senior economist at BNP Paribas SA in Beijing.

Inflation Alert

In his remarks yesterday, Wen added that officials also need to guard against inflation.
People’s Bank of China figures showed today that M2, the broadest measure of money supply, rose by a record 28.53 percent, as the central bank maintained a "moderately loose" policy stance.
Other figures today showed consumer prices fell 1.2 percent last month from a year earlier, declining for a seventh month and giving the central bank more room to keep interest rates at a four-year low to stoke growth. Producer prices dropped 7.9 percent compared with a record 8.2 percent fall in July.
China will increase interest rates "around next spring"
when inflation will climb to as high as 5 percent, economist Meng said. Inflation will quicken to 1 percent toward the end of this year and for the whole of next year will average 3.9 percent, he predicted.

General Motors

Surging auto sales are aiding the nation’s recovery.
Hyundai Motor Co., South Korea’s largest carmaker, said yesterday that it will raise annual production capacity at its Chinese venture next year to 600,000 vehicles from 500,000.
General Motors Co., the biggest overseas automaker in China, says the nation’s vehicle sales may reach 12 million this year, surpassing the U.S. as the world’s No. 1 market.
A rebound in the property market and business investment has added to signs that the recovery is maintaining momentum.
Urban fixed-asset investment for the eight months to Aug.
31 climbed 33 percent, the statistics bureau said. That was more than a 32.9 percent gain through July and the 32.7 percent median estimate in the survey of economists. For August alone, the gain was 33.6 percent.

Property Investment

Investment in real-estate development grew 14.7 percent in the first eight months after an 11.6 percent gain in the first seven months, the statistics bureau said yesterday. House prices in 70 cities rose 2 percent in August, the fastest gain in 11 months.
New loans of more than one year increased in August from the previous month and discounted bills fell, indicating more money flowing to projects that are driving growth, said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong.
Drags on the nation’s expansion include the export slump, overcapacity in manufacturing and elevated unemployment.
Exports to the U.S. fell 21.8 percent from a year earlier, the biggest slide since China’s shipments began to contract in November, according to Bloomberg News calculations. Shipments to the European Union fell 26.6 percent.