China’s production, investment rise on robust global demand

China’s factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand.

Industrial output climbed 7.2 percent in January and February from a year earlier, compared with the 6.2-percent projection in Bloomberg’s survey.

Retail sales rose 9.7 percent from a year earlier, the National Bureau of Statistics (NBS) said on Wednesday, nearly in line with the 9.8-percent estimate.

Fixed-asset investment, excluding rural households, increased 7.9 percent, versus a 7-percent projection NBS combines January and February data to smooth Lunar New Year holiday effects.

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“US growth, European growth, global growth are very strong,” Wang Tao, head of China economic research at UBS Group AG in Hong Kong, said in a Bloomberg Television interview. “We’re a bit wary that deleveraging will drive credit growth and, therefore, GDP growth a bit slower for the rest of the year.”

Despite the stronger-than-expected readings, economists project growth to moderate this year after accelerating in 2017. Policy-makers meeting this month have stepped up plans to curb debt risk while also cutting the budget-deficit target and setting a growth goal of around 6.5 percent, which omitted last year’s aim for a faster pace if possible. Yet, amid rising trade tensions, international shipments have remained robust.

“Growth momentum was strong,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong, while cautioning that the abnormally robust exports early this year are unlikely to endure and that cooling in property sectors is likely to continue.

Home sales growth slowed in the first two months amid an almost two-year campaign to cool the market. Property development investment rose 9.9 percent on year in the period.

“Indicators for January and February showed surprising strength, with industrial output defying expectations with an acceleration,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. “Beneath the surface though, there were indications that the strength in real estate and infrastructure that buoyed growth in 2017 is starting to fade,” they said, citing land sales that slowed to zero growth after rising 49.4 percent in 2017.

The data come during the annual gathering of the National People’s Congress, where delegates have undertaken a sweeping reorganization of government, scrapping term limits for President Xi Jinping and giving the central bank the power to write rules for the financial sector. Lawmakers will vote to appoint a governor to run the People’s Bank of China on March 19.

The economy of the Rust Belt northeast is recovering, Statistics Bureau Spokesman Mao Shengyong said at a briefing. Employment remained solid in the first two months while external and domestic demands was solid, Mao said.

“Strong industrial output and investment reflect a more powerful economy than expected, backed up by credit growth in January and robust demand,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.

 

Turning Points 2018
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