China Factory Output Tops Forecasts in Stabilizing Sign

China’s industrial output rose more than estimated in July, adding to signs the economy is stabilizing after unexpectedly strong trade figures yesterday.

Factory production increased 9.7 percent from a year earlier, the National Bureau of Statistics said today in Beijing. Retail sales advanced 13.2 percent while fixed-asset investment excluding rural households grew 20.1 percent in the first seven months of the year. Consumer prices rose 2.7 percent in July.

The acceleration in factory output may bolster confidence that China will avoid a deeper economic slowdown after larger-than-forecast rebounds in exports and imports and improvement in gauges of manufacturing and service industries. Stronger production will help Premier Li Keqiang meet this year’s 7.5 percent expansion target after growth moderated for two quarters.

“The data confirms that China has bottomed out,” Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said in a note. Output is picking up on an anticipated rebound in demand due to government stimulus and recent reductions in inventories, he said.

The Shanghai Composite Index of stocks reversed losses after the industrial-output report, rising 0.4 percent at the close. The MSCI Asia Pacific Index fell 0.2 percent as of 4:02 p.m. in Tokyo.

The gain in factory output was the most since December excluding distortions from the Chinese New Year holiday in January and February. The median estimate of 47 economists surveyed by Bloomberg News was for growth of 8.9 percent, unchanged from June’s rate.

Analyst Projections

Retail sales compared with the median projection for a 13.5 percent advance and a 13.3 percent increase the previous month. The median estimate for fixed-asset investment was a 20 percent increase after a 20.1 percent gain in the first half.

The reports show a “clear impact of the government’s pro-growth actions in July which stabilized confidence,” Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong, said in a note today.

Steel products, nonferrous metals, power and cement showed faster output in July, while gold and jewelry sales and food and beverages supported retail gains, Lu said.

The nation last month announced what Bank of America called a “small stimulus” while pursuing reforms that include ordering more than 1,400 companies in 19 industries to cut excess production capacity this year.

Caterpillar Inc.’s China excavator sales in July rose 14 percent to 582 units from a year earlier, increasing for five consecutive months, JPMorgan Chase & Co. wrote in a note this week.

The central bank will publish credit and money supply numbers for July by Aug. 15.

Vehicle Sales

China’s passenger-vehicle sales rose 10.5 percent in July as automakers increased production and dealerships stepped up discounts to clear inventory, figures from the state-backed China Association of Automobile Manufacturers showed today. Wholesale deliveries of 1.24 million units topped the median estimate of 1.22 million from six analysts surveyed by Bloomberg News.

China’s exports rose 5.1 percent in July from a year earlier, while imports gained 10.9 percent, the customs administration said yesterday.

Data released earlier today showed consumer prices rose less than the government’s 2013 target of 3.5 percent for a seventh month, giving Li more room to boost stimulus if needed. Producer-prices fell 2.3 percent, the 17th straight monthly decline.

Inflation Forecasts

Estimates for July inflation in a Bloomberg News survey of 47 analysts ranged from 2.5 percent to 3.2 percent. The CPI rose 2.4 percent in the first six months of the year. Food prices rose 5 percent from a year earlier in July, the statistics bureau said today, after a 4.9 percent gain in June.

The decline in producer prices compares with the median estimate for a 2.1 percent drop in a Bloomberg News survey. The producer-price data are in line with a gain in the official manufacturing Purchasing Managers’ Index and show that China’s policies to stabilize growth are working, the statistics bureau said in a statement today.

“Inflation clearly is not a big issue for this year,” Chang Jian, China economist at Barclays Plc in Hong Kong, said on Bloomberg Television. The producer-price figures are a “reflection of the severe overcapacity in many industries,” Chang said.

China’s central bank last week signaled concern that price pressures will increase, saying in a quarterly report that the country can’t be “blindly optimistic” on inflation and that it will continue to guide and stabilize expectations.

Elsewhere in the world today, France’s industrial production unexpectedly fell in June from May. Russia will probably report economic growth accelerated for the first time in six quarters, based on the median estimate of analysts surveyed by Bloomberg. The U.S. will publish data on wholesale inventories.

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