Sunday, September 11, 2011

The latest economic data from China reinforce a growing consensus - china economic growth 2011

World Economic outlook The latest economic data from China reinforce a growing consensus - china economic growth 2011 : The latest economic data from China reinforce a growing consensus among economists that Chinese policy is on hold as global uncertainty deepens.

Inflation is easing, although still worryingly high, and exports are buoyant, but facing a bleak economic outlook in the U.S. and a debt crisis in Europe. That leaves Chinese economic officials in a holding pattern as they try to navigate the world's second-largest economy to a soft landing.

Data released on Sunday suggested the government is keeping its options open, with money supply coming in slightly below expectations and loan growth surprisingly slightly on the upside. China's broadest measure of money supply, M2, was up 13.5% for the 12 months ended August, lower than the 14.7% rise for the 12 months ended July and short of economists' expectations. The median forecast of the 12 economists surveyed by Dow Jones Newswires was 14.5%.

Chinese financial institutions issued 548.5 billion yuan ($85.9 billion) in new yuan loans in August, up from 493 billion yuan in July and above economists' expectations of 500 billion yuan.

"While the bank lending number may be higher than consensus, it's not an indication that the central bank is letting up on its still-tight policy stance. If they were to loosen policy too quickly, it would reignite the fire in the speculative property sector," said Song Seng Wun, a Singapore-based economist with CIMB Research.

Generating new yuan loans of between 500 billion yuan and 550 billion yuan each month is in line with the Chinese government's need to keep the economy growing at its current pace, Mr. Song said.

"The bottom line is that the central bank will stand pat for now," he said. "They will ensure liquidity for productive uses and will continue to discourage lending to the nonproductive segments of the economy, such as property."

Despite a slight retreat in the headline consumer price index, "there are still worries that we still have broad-based inflation," said Mr. Song.

China's consumer price index for August was up 6.2% from a year earlier, data released Friday showed—only a slight slowdown from July's 6.5% pace, which was the fastest in more than three years. The main driver continued to be food prices, up 13.4% in August from a year earlier, while nonfood prices were up 3%.

Industrial production, China's main monthly measure of economic output, was up 13.5% from a year earlier in August, slightly off July's 14% pace, the country's statistics bureau said Friday. Analysts saw that as a sign that the economy is on track for a soft landing.

Fixed-asset investment, a closely watched indicator of construction activity, was up 25% from a year earlier for January-August, down from a 25.4% pace in the January-July period.

Meanwhile, China's trade surplus unexpectedly narrowed in August as imports surged, a positive sign for the global economy as it indicates that Chinese demand remains strong.

The surplus was $17.8 billion in August, customs data showed Saturday, down from $31.5 billion in July and well below expectations. The median forecast of economists polled earlier by Dow Jones was for a trade surplus of $23.4 billion.

Imports in August were up 30.2% from a year earlier, accelerating from the 22.9% rise in July, according to data released Saturday. Exports also performed relatively well, up 24.5% from a year earlier, compared with a 20.4% rise in July.

A lower Chinese trade surplus, if sustained, could weaken the case for rapid appreciation of the yuan, said Goldman Sachs economist Yu Song. "Last month the large surplus provided ammunition to those in Beijing arguing for faster appreciation," he said.

The yuan rose at an annualized rate of around 12% against the dollar in August, but most analysts doubt that this pace will be maintained.

In the eight months through August, China's trade surplus came to $92.7 billion, down 10% from a year earlier, the Customs bureau said.

China's resilient import demand is certainly a welcome development for international markets, which have come to depend on China as an engine of global growth, said Goldman's Mr. Song.

The export data "tends to alleviate the concerns policy makers have on external demand, though this does not imply a major change in their views as there is clearly still plenty of evidence which suggests exports growth will likely slow in the coming months," Goldman's Mr. Song said.

China's gross domestic product in the second quarter was up 9.5% from a year earlier, compared with 9.7% in the first quarter. source

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