China’s economy entered the final quarter of 2013 with an acceleration in manufacturing and exports, momentum that offered confidence to Communist leaders gathering to determine policy shifts for the coming decade.
Industrial output rose a more-than-estimated 10.3 percent from a year earlier in October and manufacturing investment strengthened, according to data released Nov. 9 by the National Bureau of Statistics. Customs data the previous day showed overseas sales rebounded by more than forecast.
President Xi Jinping and top Communist leaders tomorrow conclude a four-day gathering to map out an economic blueprint to sustain growth and drive the urbanization of hundreds of millions of rural residents. Chinese media reported today on the prospects for allowing private investment in government businesses and for expanding a property tax nationwide as the People’s Daily said the party needs to demonstrate the “ability to govern.”
“The recent data all suggest a gently recovering economy - - good enough to allow the leadership to stop worrying about the next few months and focus on medium-term reform,” said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, who correctly forecast the industrial output growth. “The question is now whether they have a convincing-enough plan to deal with those medium-term challenges.”
Standard Chartered last month raised its estimate for China’s 2013 economic growth to 7.6 percent from 7.5 percent and revised next year’s forecast to 7.4 percent from 7.2 percent. The new projections match the median estimates in Bloomberg News surveys in October.
The benchmark Shanghai Composite Index of stocks fell 0.3 percent at 9:47 a.m. local time and the yuan weakened 0.02 percent.
About 370 top Communist Party members including government ministers, military officers and heads of state-owned companies are gathering in Beijing for a meeting known as the third plenum to decide on the scale and pace of changes in the world’s second-biggest economy. A communique will be released after the meeting ends outlining the road-map.
“How to make breakthroughs and overcome hardships and how to respond to people’s callings in a better way relate to the appeal of reform, and are testing our party’s ability to govern,” the Communist mouthpiece People’s Daily said today in a front-page commentary.
China will introduce major steps to reform state-owned enterprises after the plenum, China Daily reported, citing Huang Shuhe, vice-chairman of the State-owned Assets Supervision and Administration Commission. The China Securities Journal cited government researcher China Center for International Economic Exchanges as saying in a report that the country should aim to start a tax on individuals’ property nationwide in 2015.
The State Council’s research institute says reforms should include curbing the government’s role in the economy, adjusting the fiscal system and spurring foreign investment.
Easing the one-child policy, changing rural land rights and allowing local governments to issue bonds may be among the reforms, according to Bank of America Corp., while Mizuho Securities Asia Ltd. expects policies to bolster urbanization such as changes to the household registration, or hukou, system, and a rebalancing of fiscal responsibilities between central and local governments.
There’s no disagreement on the necessity of reform, Wang Huaichao, a professor with the Central Party School, was cited as saying by the official Xinhua News Agency in a Nov. 9 report. “The debate is on the sequence, degree and measures of reform,” he said.
October’s industrial output growth exceeded the 10 percent median estimate in a Bloomberg News survey of economists and the previous month’s 10.2 percent. Gains have exceeded 10 percent in each of the past three months, the longest stretch since the end of 2011, excluding January and February distortions caused by the timing of the Lunar New Year holiday.
Rockwell Automation Inc. (ROK) Chief Executive Officer Keith Nosbusch said factory demand in China from the auto, export and energy industries will drive sales at the U.S. maker of factory-efficiency equipment and software after a 2013 slowdown. “We started to see growth in China in the second half of the year and that momentum will continue into 2014,” Nosbusch said in a Nov. 7 interview.
October inflation was a less-than-forecast 3.2 percent, producer prices fell 1.5 percent from a year earlier and retail sales rose 13.3 percent.
Fixed-asset investment excluding rural households in the first 10 months of the year gained 20.1 percent. Manufacturing investment grew 23.7 percent in October, up from an average 17.2 percent in the first half, according to Royal Bank of Scotland Plc estimates.
The People’s Bank of China will report October money supply, new loans and aggregate financing, its broadest measure of credit, this week.
The central bank said last week the economy “may see a decline in leverage” over a relatively long period of time, and Premier Li Keqiang said in comments published last week that issuing more money may lead to inflation, suggesting authorities will seek to rein in credit growth to curb financial risks.
That, along with stronger efforts to cut excess capacity in industries including steel, could be a drag on growth in the short term, said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong.
“We’re not talking about deleveraging or significant tightening, I think it’s more of a tapering -- conditions were very loose and now we’re going back to normal,” said Zhu. “If you deleverage too hard you could have a hard landing in the economy which could cause a financial crisis and that’s something they want to avoid.”
China needs annual expansion of 7.2 percent a year to keep unemployment stable, Li said in a speech last month, and previously indicated a “bottom line” of 7 percent would be tolerated as the government implements reforms to shift the country away from a reliance on investment and exports.
Economic expansion of 7.6 percent this year would be down from 7.7 percent in 2012 and the same pace as 1999, which was the weakest expansion since 1990.
“Although growth momentum is weakening, some reform measures, such as hukou and rural land, as well as fiscal reform, could boost domestic demand and efficiency, and make it possible for the economy to sustain above 7.2 percent growth,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “The question is how determined the new leadership is to overcome vested interests to push for fast implementation of these reforms.”
Elsewhere in Asia, Japan’s current-account surplus widened in September to the highest since April, and Australian home-loan approvals rose more than forecast. The Sri Lankan central bank left interest rates unchanged after an unexpected cut last month.
Italian industrial output probably rose in September from the previous month and Russia’s trade surplus may have widened in September compared with August, according to separate Bloomberg News surveys ahead of data today.
--Nerys Avery. With assistance from Scott Lanman and Regina Tan in Beijing and James Mayger and Andy Sharp in Tokyo. Editors: Nerys Avery, Scott Lanman
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