Mainland economy maintains momentum

PUBLISHED : Thursday, 12 November, 2009, 12:00am
UPDATED : Thursday, 12 November, 2009, 12:00am

Growth in the mainland's industrial output and retail sales accelerated last month in a sign the economy is benefiting from the government's massive stimulus plan and increased private consumption.

Industrial production, which accounts for about 40 per cent of the country's economic output, rose 16.1 per cent from a year earlier, markedly up from September's 13.9 per cent growth, the National Bureau of Statistics said yesterday.

While cautioning that the latest data benefited from the comparison with October last year, when growth was hit by the onset of the financial crisis, officials and analysts said the improving trend of recent months remained solid.

'We have even more reason to believe that China can realise its economic growth target of 8 per cent this year,' said Sheng Laiyun, a spokesman for the agency. 'The contribution of consumption to China's economic growth has increased, which is a positive trend.'

He said retail sales rose 16.2 per cent from a year earlier, and that rate was 0.7 percentage point higher than in September.

Retail sales grew 15.3 per cent in the first 10 months from a year earlier to 10.14 trillion yuan (HK$11.51 trillion). The rate was 0.2 percentage point up from the first nine months.

Grace Ng, a Greater China economist with JP Morgan Chase, said the overall data confirmed that the economy's momentum continued into the fourth quarter.

'The latest data also confirms our view that the major source of growth in the Chinese economy has been broadening from public investment to consumption, private investment, and the bottoming out and steady recovery in exports,' Ng said.

Tomo Kinoshita and Sun Mingchun of Nomura International said 'inventory restocking partially contributed to the acceleration'.

Jing Ulrich, the chairman of JP Morgan's China equities and commodities, said she believed industrial activity should continue to grow in the coming months, as evidenced by strong growth in power consumption.

The country produced 312.1 billion kilowatt-hours of electricity last month, up 17.1 per cent from a year earlier, the official data showed.

The government put into place a series of stimulus measures to fuel consumption, including tax cuts for car and property purchases and subsidies for home appliances in rural areas, after a slump in exports dampened economic growth.

Vehicle sales rose 72 per cent year on year to 1.22 million units last month, bringing total sales to 10.89 million units in the first 10 months, up 36.23 per cent from a year ago, the China Association of Automobile Manufacturers said.

The extra momentum from consumers at home and abroad is welcome since the initial boost from the government's stimulus package is starting to fade.

Growth in fixed-asset investment, the mainland's main measure of capital spending, slowed modestly to 32 per cent last month from 35 per cent in September.

As the economic recovery is now on a firmer footing, the government is turning its attention to the risk of inflation, although prices were lower last month than in previous months.

The fall in consumer prices narrowed to 0.5 per cent from 0.8 per cent in September. The producer price index fell 5.8 per cent from a year earlier, its 11th consecutive monthly drop but slower than September's 7 per cent fall. It rose 0.1 per cent from September.

Nomura's economists said the economic indicators verified their long-held forecast of a V-shaped recovery.

'We maintain our real [gross domestic product] growth forecast of 11 per cent year on year in the fourth quarter this year and 13 per cent in the first quarter next year,' they said.

Policymakers and analysts have expressed confidence in the country's recovery after the economy grew 8.9 per cent in the third quarter.

The World Bank raised this year's growth forecast for China last week to 8.4 per cent, following similar moves by the International Monetary Fund and the Asian Development Bank.

However, Ben Simpfendorfer, the chief China economist with Royal Bank of Scotland, said he was worried that the recovery remained unbalanced because of the still tepid export demand and a light industrial sector that was lagging the booming heavy industrial sector.

'The implications of a still sluggish light industrial sector are weak business investment and employment growth. It is for this reason that the lack of economic reform and the challenges for the private sector in participating in this recovery remain areas of concern,' Simpfendorfer said, adding that 'this is more an issue for 2010'.

Tom Orlik, a China analyst with Stone and MaCarthy, said the wave of data released yesterday would fuel the 'debate on the right time, and right procedure, to exit from an extraordinary period of policy stimulus'.

Consumers return

Compared with a year earlier, retail sales in October increased: 16.2%