China’s Economic Data Show Weakest Start Since 2009
China’s industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, underscoring challenges for a new leadership that wants to narrow the gap between rich and poor.
Production increased 9.9 percent in the first two months and retail sales rose 12.3 percent, government data showed March 9, trailing economists’ estimates. New local-currency loans in February fell to 620 billion yuan ($99.6 billion), the People’s Bank of China said yesterday, lower than the estimates of 27 out of 28 analysts in a Bloomberg News survey.
Strengthening U.S. demand after the unemployment rate fell to a four-year low may help incoming Premier Li Keqiang achieve the 7.5 percent expansion in gross domestic product sought by policy makers entering the final week of their meeting at the National People’s Congress in Beijing. The biggest January- February gain in China’s exports since 2010 and accelerating investment show the world’s second-biggest economy yet to wean itself from reliance on trade and spending on fixed assets.
Growth is showing “an old-fashioned pattern, relying especially on exports and investment, with consumption lagging,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong.
At the same time, February credit data indicate the central bank may be working to contain the expansion in lending and aggregate financing that started last year, said Kuijs, who previously worked as an economist for the World Bank in Beijing.
New local-currency loans in February trailed the 700 billion yuan median estimate in a Bloomberg survey and were lower than the 710.7 billion yuan in the same month last year and the 1.07 trillion yuan figure in January. Aggregate financing, a broader measure of credit, fell to 1.07 trillion yuan last month from a record 2.54 trillion yuan the previous month, PBOC data showed.
U.S. stocks have risen 8.8 percent this year, compared with a 1.8 percent gain in the Chinese benchmark index, as optimism increases that the world’s biggest economy is responding to an unprecedented monetary stimulus. In China, the decline in four February purchasing managers’ indexes, and official data released over the past week, are raising concerns that a recovery that started in the fourth quarter may be peaking even as house-price gains accelerate and inflation risks increase.
The Shanghai Composite Index fell 0.4 percent today, its third straight decline.
Industrial output may have been constrained by the retail slowdown and cuts in inventories, according to Kuijs.
China’s Gini coefficient, a measure of income differences, was 0.474 last year, according to the government, higher than the 0.4 level that analysts say signals potential for social unrest.
The growth in January-February retail sales was below the lowest economist projection of 13.8 percent and was the smallest for that period since 2004. The moderation follows a crackdown by new Communist Party chief Xi Jinping on lavish spending by government officials and state-owned companies, part of efforts to curb corruption and waste.
Shares of Kweichow Moutai Co. (600519), maker of the eponymous high- end white spirit, have dropped 19 percent since Xi took power on Nov. 15, compared with a 14 percent gain in the Shanghai Composite Index.
The increase in factory output compared with the 10.6 percent median estimate in a Bloomberg survey. The statistics bureau doesn’t break out figures for January and February retail sales and industrial output in an attempt to smooth distortions caused by the timing of the Lunar New Year holiday.
Fixed-asset investment excluding rural areas in the first two months of the year rose 21.2 percent, against a median economist estimate of 20.7 percent and a 20.6 percent pace for the whole of 2012.
Consumer prices climbed a more-than-estimated 3.2 percent in February from a year earlier. Standard Chartered Plc estimates inflation will average 4 percent this year, compared with the government’s target of 3.5 percent.
“From a monetary policy perspective, by mid-2013, the inflation issue should begin to move up policy makers’ list of things to worry about,” Li Wei, a Shanghai-based economist with Standard Chartered, said in March 9 note. Li forecasts the central bank will raise benchmark interest rates once in the fourth quarter by 25 basis points as the CPI rises above 5 percent.
Elsewhere in the region, Japan’s machinery orders plunged 13 percent in January, the biggest decline in eight months. Malaysia reported that industrial output rose a less-than- estimated 4.6 percent in January from a year earlier, while the country’s exports climbed a greater-than-forecast 3.5 percent.
The Asian Development Bank said its board of governors will elect a new president by April 24.
In Europe, French industrial production fell in January as the region’s second-largest economy teetered on the brink of its third recession in four years. Italy said its economy contracted 0.9 percent in the fourth quarter from the previous period.
China’s economic growth slowed for seven quarters before recovering to 7.9 percent in the final three months of 2012, led by government-directed spending on infrastructure. The central bank also allowed expansion in credit in the less-regulated shadow banking sector.
The rebound may accelerate to 8.2 percent in the first quarter before slowing to 8 percent in the last three months of the year, according to median estimates in Bloomberg surveys last month.
At the same time, the PBOC has flagged growing inflation and financial risks since December and the government stepped up efforts to curb resurgent home prices on March 1, ordering higher down payments and interest rates for some mortgages and implementation of a 20 percent capital gains tax.
The pace of economic recovery may slow after the first quarter because of forces including the property measures, according to a front-page commentary today in the China Securities Journal, which is published by the official Xinhua News Agency.
“Policy makers face a dilemma as growth is weakening yet inflationary pressure keeps building,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “The government will eventually have to tighten policy to contain inflation but in the short term, the next several months, the government may put policy on hold to observe how growth and inflation move and fine-tune accordingly.”
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