China August data buoy confidence on firm economic recovery

11 September 2009 09:22  [Source: ICIS news]

By Fanny Zhang and Judith Wang

GUANGZHOU (ICIS news)--A slew of economic data from China on Friday supported the view that the world’s third largest economy was on a steady path to recovery, analysts said.

The Shanghai Composite Index jumped 2.22% to close at 2,989.79 as investors welcomed the 12.3% year-on-year jump in China’s August industrial production and the 15.4% increase in retail sales, among others.

"As we [had] predicted, the overall economy has bottomed out and entered a recovery path,” said Liu Qiyuan, an analyst at China Merchant Securities.

The People’s Bank of China (PBoC) also released on Friday data on August loans, which recorded a 15.3% increase from July.

The broad measure of money supply or M2 expanded a strong 28% in August from the same period last year, reflecting the government’s strong pump-priming efforts.

Fixed assets investments in the first eight months of the year grew 33% to CNY11,299bn ($1,654bn), based on latest data from the National Bureau of Statistics (NBS).

“The strong economic recovery boosted demand for investments and loans,” said Dong Xian’an, chief economist from Shanghai-based brokerage Industrial Securities.

New loans should continue to grow at a robust pace in the months ahead, he added.

Latest data on China’s foreign trade also painted a better picture, given improvement on month-on-month comparison.

August exports grew 3. 4% from July to $103.7bn (€71.6bn) while exports inched up 1% to $88bn over the same period, China Customs statistics showed.

On a year-on-year basis, however, both exports and imports were on their 10th consecutive months of declines amid weakness in the global economy. August exports were down 23.4% year on year, while imports fell 17%, based on customs data.

“The global economic downturn has been almost curbed. Overseas demand from the US and Europe will gradually increase in the future,” said Dong of Industrial Securities.

The current positive trend should help China post year-on-year exports growth in the last two months of the year, said Deutsche Bank chief economist Ma Jun in a recent report.

“We now expect export growth to rise to positive 3% year on year in Nov-Dec 2009,” he said.

Meanwhile, there remains no threat of inflation hampering China’s economic recovery as its consumer price index (CPI) and producer price index continued to register declines.

CPI slipped 1.2% in August, its seventh month of declines. PPI was on its ninth month of falls, registering a 7.9% decline, according to NBS.

Liu from China Merchant Securities said he expects China’s CPI to return to positive territory in October or November, while PPI would remain negative for the rest of the year.

China was turning around the corner faster than its global peers.

But with recovery being accompanied by rallies in property prices and heavy bank lending, inflationary pressures would be created. This may justify China hiking interest rates ahead of the other major economies, said Ma of Deutsche Bank.

“We expect China to raise rates earlier than the US, and will likely hike rates by 81 basis points next year,” Ma said.

($1 = CNY6.83)

With additional reporting by Dolly Wu

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