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China Industrial Output Accelerates as Inflation Eases

Which Chinese City Will Become the Next Detroit?
The Chinese flag flies ahead of the daily flag-lowering ceremony at Tiananmen Square in Beijing. Photographer: Nelson Ching/Bloomberg

China’s factory output and retail sales exceeded forecasts and inflation unexpectedly cooled to the slowest pace in 33 months, signaling the government is boosting growth without driving a rebound in prices.

Industrial production rose 9.6 percent in October from a year earlier, the National Bureau of Statistics said today in Beijing. That exceeded the 9.4 percent median estimate of analysts surveyed by Bloomberg News. Retail sales growth of 14.5 percent picked up from September’s 14.2 percent. The consumer-price index increased 1.7 percent.

Today’s reports may offer some comfort to China’s leaders who are meeting in Beijing this week for a once-a-decade power transition and pledged yesterday to double per-capita income in the 10 years through 2020. The pause in monetary easing since July may persist as data increasingly show the economy recovering from a seven-quarter slowdown.

“The key question for investors is whether China’s economic growth has truly bottomed and is recovering,” and the “answer is firmly yes,” said Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong.

Government spending may be playing a key role in the pickup. Fixed-asset investment excluding rural areas increased 20.7 percent in the first 10 months of 2012 from a year earlier, compared with the 20.6 percent median analyst estimate and a 20.5 percent pace in the January-September period.

Central Government

Spending on central government-invested projects rose 5.1 percent in the 10-month period from a year earlier, more than double the January-September pace, the data show.

The yuan was little changed against the dollar in Shanghai today. The benchmark Shanghai Composite Index of stocks fell for a fifth day, dropping 0.1 percent.

The increase in China’s gross domestic product slowed to 7.4 percent in the July-September period from a year earlier, the weakest in three years. Expansion will probably speed up to 7.7 percent this quarter and to 7.9 percent in the three months through March 2013, based on the median estimate of analysts surveyed Oct. 18-22.

The increase in industrial output was the most in five months and compared with 9.2 percent in September. Retail sales growth was the highest since March.

The CPI increase was below the 1.9 percent median estimate of analysts surveyed by Bloomberg News and compared with 1.9 percent in September. Producer prices declined 2.8 percent from a year earlier after a 3.6 percent drop in September.

‘Comfortably Low’

“Inflation remained comfortably low, but, given more signs of growth recovery, the PBOC will probably stay on the sideline,” said Yao Wei, China economist at Societe Generale SA in Hong Kong, one of two analysts to accurately predict the CPI reading.

China’s consumer-price gains have slowed from a three-year high of 6.5 percent in July last year as food costs eased.

Food prices rose 1.8 percent last month from a year earlier, compared with a 2.5 percent gain in September, according to the statistics bureau. Pork, a Chinese staple, dropped 15.8 percent from a year earlier, subtracting 0.6 percentage point from the CPI, compared with a 38.9 percent rise in October 2011.

Zhongpin Inc., a Nasdaq-listed processor of meat for restaurants and stores in China, said yesterday that third-quarter net income dropped 40 percent as the price of pork fell and costs to support expansion rose, according to a statement from the Changge, Henan province-based company.

Stable Inflation

Inflation is “currently stable,” the central bank said in its quarterly monetary policy report last week. At the same time, it highlighted risks from increases in costs of imported goods and said prices are sensitive to expansion in demand and stimulus policies.

The decline in the producer-price index compared with the median estimate for a 2.7 percent drop in a Bloomberg survey of economists. The reading marked the first improvement since prices started falling on a year-earlier basis in March as domestic demand slowed, with the government’s campaign to rein in inflation and property prices and excessive inventories plaguing industries including steel and cement.

Elsewhere in the Asia-Pacific region, the Reserve Bank of Australia reduced its 2013 growth forecast as lower investment and the government’s pledge to deliver a budget surplus restrain the economy. The Bank of Korea kept interest rates unchanged as projected by all economists surveyed by Bloomberg. Malaysia’s exports unexpectedly rose in the first gain in three months in September.

French Factories

French industrial production fell more than estimated in September, while Russia’s central bank refrained from increasing borrowing costs after inflation unexpectedly slowed in October for the first time in six months.

In the U.S., the Thomson Reuters/University of Michigan preliminary November consumer sentiment index probably climbed to the highest since 2007, while the Commerce Department may say inventories at wholesalers rose at a slower pace in September.

In China, shrinking stockpiles of some products are setting the stage for replenishment to support an economic rebound and price gains. Stocks of manufacturers’ finished goods contracted in October for a fourth month at close to the fastest pace this year, according to a government purchasing managers’ survey. One measure of coal inventories shows a 40 percent drop since this year’s peak in June and a gauge of steel stockpiles is the lowest since 2009.

“We believe macro data will remain strong” through the rest of the fourth quarter, Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a note.

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