The Rising Influence of Rising Affluence

[DewDiligence]

Chinese Economy Picks Up Pace

http://online.wsj.com/article/SB10001424127887323894704578108141057439464.html

›November 9, 2012, 10:26 a.m. ET
By BOB DAVIS

BEIJING—China's economy is starting to accelerate after nearly two years of slowing growth, giving a lift to global economic prospects, although sustained growth may require a big change in Beijing's economic policies.

Industrial and consumer indicators released on Friday suggested that China's economy strengthened in October, albeit modestly, the second month in a row to show positive results. Industrial production grew 9.6% in October from a year earlier, an increase from the 9.2% gain in September.

"We're getting a U-shaped recovery, which is what we need" in China says Standard Chartered China analyst Stephen Green. "Once they stabilize the economy, they need to turn to big issues of reform" to sustain growth.

Compared with China's average annual growth of 10% over the past 30 years, the pickup is likely to be slight. In a speech on Thursday, Hu Jintao, China's president and the outgoing Communist Party chief, set a goal of doubling China's 2010 GDP by 2020, suggesting that China's planners foresee roughly 7% growth a year for this decade. [I.e. 1.07^10 is very close to 2.0.]

Still, the direction of the Chinese economy now appears upward, a break with the past seven quarters during which the pace of China's growth steadily declined. China grew at 7.4% in the third quarter of 2012 year over year, and a number of analysts expect an increase in the current quarter, closer to 8%.

Fixed-asset investment in nonrural areas, a closely watched indicator of construction activity and demand for machinery and equipment, picked up slightly. It was up 20.7% from a year earlier in the January-October period, rising from a 20.5% increase in the January-September period.

Retail sales rose 14.5% year over year compared with 14.2% in September.

The positive data offered further signs that a rebound in the Chinese economy that began in September continued in October, after several months of slowing growth.

While that may ease worries that China's economy would slow further and perhaps crash land, other problems remain in the global economy, including Europe's continuing debt crisis and the so-called fiscal cliff in the U.S. The latter is the fear that the U.S. will impose huge tax increases and spending cuts if President Barack Obama and Congress can't reach a deal on how to reduce the national debt over time.

Charlene Chu, an analyst at Fitch Ratings, said that faster credit growth in China was behind the rise in economic activity. Bank lending and bond issuance picked up sharply in the third quarter, she said, making it easier to fund infrastructure projects that had been approved by Beijing but which had languished for lack of money. Spending on railway projects, in particular, has picked up.

According to data issued Friday by the China Trustee Association, an industry body, new funding provided by China's trusts—a type of wealth management company that taps private funds—for infrastructure projects was 310.86 billion yuan ($49.76 billion) in the third quarter, almost triple the 116.24 billion yuan they provided a year earlier.

Should Chinese policy makers decide that more stimulus is in order, Friday's data indicated they have room to do so. Consumer prices rose by 1.7% in October, a 33-month low. Inflation is widely expected to rise somewhat over the coming months, but remain below 4%.‹