China August Industrial Output Rises 10.4%

China’s industrial output grew at the fastest pace in 17 months in August and the broadest measure of new credit almost doubled from July as a recovery in the world’s second-largest economy gains traction.

Factory production rose 10.4 percent from a year earlier, the National Bureau of Statistics said in Beijing today, Aggregate financing was 1.57 trillion yuan ($257 billion), the central bank said, topping the median analyst estimate of 950 billion yuan. UBS AG said China’s liquidity and credit squeeze appears over, while Societe Generale SA said corporate and local-government debt is rising from already alarming levels.

Premier Li Keqiang said today that August data show a recovery trend, after the government used measures from tax cuts to extra spending on railways to defend the year’s 7.5 percent expansion goal. As Communist Party leaders prepare for a November meeting to discuss policy reforms, Li said that industrialization and urbanization will fuel growth, the official Xinhua News Agency reported.

“The government growth target appears within reach, which reduces the chance of stimulus and allows the government to focus on reform,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

The benchmark Shanghai Composite Index rose 1.2 percent to the highest close since June. The yuan was little changed at 6.1200 per dollar.

The gain in output compared with a median forecast of 9.9 percent in a Bloomberg News survey. The government doesn’t release separate industrial data for January and February, which are distorted by the Chinese New Year holiday.

‘Downside Risk’

“If credit growth picks up persistently from here, China’s current growth recovery may well last a bit longer and go a bit further,” said Yao Wei, China economist at Societe Generale in Hong Kong. “However, that only adds to the downside risk afterwards, as the leverage of Chinese corporates and local governments keeps rising from the already alarmingly high level.”

Industrial production topped all 45 analysts’ estimates in a Bloomberg News survey, with projections ranging from 9.2 percent to 10.2 percent, following a 9.7 percent gain in July. Thirty-nine of 41 industries reported growth, including a 13.6 percent gain in ferrous metals and 12.3 percent in chemicals, according to the statistics agency.

Steel production rose 15.6 percent in August, up from 10.9 percent in July, and electricity output expanded 13.4 percent, compared with 8.1 percent the previous month.

Retail Sales

Retail sales advanced 13.4 percent, while fixed-asset investment excluding rural households increased 20.3 percent in the January-August period, both topping estimates.

The median estimate for retail sales was a 13.3 percent advance after 13.2 percent in July. Fixed-asset investment was projected by economists to rise 20.2 percent in the January-August period, after a 20.1 percent gain in the first seven months of the year.

A separate report today showed China’s passenger-vehicle sales gained the most in four months in August, led by sales of sport utility vehicles. Wholesale deliveries of cars, multipurpose and sport utility vehicles climbed 11 percent to 1.35 million units, according to the state-backed China Association of Automobile Manufacturers today.

China’s exports rose 7.2 percent from a year earlier, the General Administration of Customs said Sept. 8. That exceeded the 5.5 percent median estimate of analysts. At the same time, imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion.

Inflation, Stimulus

Consumer prices rose 2.6 percent in August, the statistics bureau said yesterday, leaving room for extra stimulus if needed. The producer-price index fell 1.6 percent, the least since February.

Premier Li, in an opinion article published yesterday in the Financial Times, said the economy “will maintain its sustained and healthy growth,” with expansion around a 7.5 percent “lower limit” intended to ensure steady growth and employment.

Goldman Sachs Group Inc. last week raised its estimate for China’s economic growth for the third and fourth quarters, citing improving global demand and a stronger-than-expected domestic industrial recovery. JPMorgan Chase & Co. and Deutsche Bank AG raised their growth forecasts over the past month, bolstering optimism that Li will meet the government’s target for expansion this year.

Analyst Forecasts

Analysts surveyed by Bloomberg News last month gave a median estimate for 7.5 percent expansion this quarter and 7.3 percent in the October-December period.

China’s top solar-panel makers are returning to profitability following two years of losses as higher demand and prices drive up margins. JinkoSolar Holding Co. last month reported second-quarter net income of $8 million, its first profit since the third quarter of 2011, as sales jumped 43 percent from a year earlier.

In other economies today, French industrial production unexpectedly fell in July from the previous month, while Italy released final figures for second-quarter gross domestic product that showed a deeper contraction than initially estimated.

— With assistance by Xin Zhou

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