Threat of Overheating in China

China's industrial production grew more than economists estimated in November, exports fell the least in 13 months and imports surged, confirming the nation's role as leader of the world recovery. Factory output climbed 19.2 percent from a year earlier, the statistics bureau said in Beijing. That was more than the 18.2 percent median estimate in a Bloomberg News survey of 25 economists. Exports slid 1.2 percent. Imports rose 26.7 percent.

New loans topped forecasts and money supply expanded by a record, extending a credit boom that may fuel asset bubbles and inflation and has prompted plans by lenders including Bank of China Ltd. to replenish capital. The government this week adjusted its stimulus policies to curb property speculation, while extending subsidies for rural purchases of consumer goods and pledging a "moderately loose" monetary policy in 2010.

"Industrial output, money supply growth and fixed-asset investment are not only restored to pre-crisis levels but are approaching overheating territory," said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. The central bank may raise lenders' reserve requirements in the first quarter of 2010 "to mitigate the inflation and bubble risk," he said.

Consumer prices rose 0.6 percent, the first increase in 10 months, the statistics bureau said.

The Shanghai Composite Index swung between gains and losses today after climbing almost 80 percent this year. Data released yesterday showed property prices rose by the most in 16 months in November.

Economic AccelerationChina's growth accelerated to 8.9 percent in the third quarter on the record lending and a $586 billion, two-year stimulus package, helping Asia to lead the recovery from the global economic slump. Today's figures showed Southeast Asian demand aiding exports. Shipments to the region jumped 20.8 percent as those to the U.S. and Europe fell at a slower pace.

The industrial output number was boosted by the low base in November 2008, after the collapse of Lehman Brothers Holdings Inc. intensified the global financial crisis. Steel product output reached a record last month and power generation rose by the most in five years.

In contrast, India reported a lower-than-forecast 10.3 percent gain in industrial production today, partly because of weakness in electricity output. In China, urban fixed-asset investment gained 32.1 percent in the January-to-November period from a year earlier after climbing 33.1 percent through October, today's data showed.

BMW, SinopecForecasts for China to maintain the fastest growth of any major economy are encouraging companies to expand. The nation's gross domestic product will expand 9.3 percent next year, according to a Bloomberg News survey of economists.

China Petroleum & Chemical Corp., the country's biggest refiner, said this month that it plans to expand the capacity of its second-biggest oil-processing plant by a third. Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said last month that it will build a new factory worth 5 billion yuan ($732 million) to tap an auto market set to overtake the U.S. as the world's largest this year.

Imports climbed the most in 16 months because of rising commodity prices, the boost to domestic demand from stimulus policies and the low base in November 2008. The trade surplus narrowed to $19.1 billion.

Twelve-month non-deliverable yuan forwards slipped 0.2 percent to 6.6665 per dollar as of 2:22 p.m. in Hong Kong after the improvement in exports was smaller than economists forecast.

Climbing Retail SalesRetail sales climbed 15.8 percent in November from a year earlier, compared with 16.2 percent in October, according to the statistics bureau. Producer prices fell 2.1 percent. New loans were 294.8 billion yuan. M2 money supply grew 29.7 percent.

The State Council said this week that the government will re-impose a sales tax on homes sold within five years after cutting the period to two years in January. It also extended subsidies for rural consumer purchases, while scaling back tax breaks for some car buyers.

"Beijing's fine-tuning of stimulus measures shows that it's getting more comfortable with the economy's recovery," said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. "The government may start to exit stimulus via curbing investment and loans from April."

China's banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. In the first 11 months of this year, loans reached 9.21 trillion yuan. The government is wrestling with overcapacity and excess production in some industries, such as steel, where an oversupply is depressing profits for mills including Baoshan Iron & Steel Co.

— Li Yanping, Kevin Hamlin, Zhang Dingmin. Editors: Paul Panckhurst, Russell Ward.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or

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