BEIJING: Chinese factories ramped up production in August and money growth easily topped expectations, showing that the economy remained buoyant despite government efforts to clamp down on bank lending and property speculation.
Investment was also resilient, while inflation sped to its fastest pace in 22 months, though the bulk of price rises stemmed from higher food costs, which analysts have said should be transitory after a spell of bad weather across China this summer.
Markets have been worried that global weakness alongside the official campaign to rein in property prices and bank loans could weigh on China, but the suite of August data painted the picture of an economy that was gliding into the softest of landings.
"The August economic indicators and the recovery in industrial output in particular confirm the economy's stabilising trend and show that it has more internal drive," said Wang Han, an economist with research and advisory firm CEBM in Shanghai, on Saturday, Sept 11.
The uptick in inflation to 3.5 percent in the year to August from 3.3 percent in July was more or less in line with expectations.
"The headline number looks high, but it's all food. Non-food is low. Producer prices are still falling," said Tom Orlik, an economist with Stone McCarthy Research Associates in Beijing.
The gains in industrial output and money growth were more surprising.
Industrial production rebounded to rise 13.9 percent year on year after slowing to 13.4 percent in July. Economists polled by Reuters had forecast a rise of 13.0 percent.
The broad M2 measure of money growth sped up to 19.2 percent in August, blowing past expectations of a 17.5 percent increase. The rise came alongside slightly stronger-than-expected bank lending, with the stock of outstanding loans in the economy up 18.6 percent, the first acceleration in four months.
"IN A SWEET SPOT"
Investment was another data point that revealed unexpected strength, with capital spending in urban areas up 24.8 percent in the first eight months of the year compared with the same period in 2009. Economists had forecast a 24.5 percent rise.
Although the market has been focused on property tightening, Yu Song and Helen Qiao, economists at Goldman Sachs, asserted that the government had in fact been loosening policy by speeding up infrastructure investment in recent months.
"The magnitude of such a loosening was never clear, and yesterday's imports and today's fixed-asset investment and industrial production suggest the magnitude might be greater than we initially expected," they wrote in a note to clients.
The figures on Saturday followed a leap in imports that was reported on Friday, also underlining the momentum in China, which has already overtaken Japan as the world's second-largest economy by some measures. [ID:nTOE689024]
Stephen Green, an economist with Standard Chartered in Shanghai, did not see any pronounced loosening yet, but said the government could ease lending restrictions and approve more investment projects towards the end of the year to counter headwinds such as a U.S. slowdown.
"Add all that together, and we think that the economy, despite possibly some short-term volatility in sentiment as exports and housing decelerate, is in a bit of a sweet spot. Not too hot, and not too cold," he wrote in a note.
MORE TIGHTENING?
The data could raise questions about whether China's next policy move will be a tightening, not a loosening. Already, some investors suspect that the government will have to step up its crackdown on property speculators, with the latest numbers pointing to a jump in real estate transactions.
When the release date for the August numbers was moved up to Saturday from Monday, as originally scheduled, some media outlets speculated that the government could be paving the way to announce an increase in interest rates.
The National Bureau of Statistics dismissed such talk, saying it was merely trying to release the data as early as possible.
And economists, looking at the numbers, said price pressures could very well have hit their 2010 peak in August.
"I don't see any strong underlying inflationary pressure or any case for moving on interest rates," Orlik said.
Investment was also resilient, while inflation sped to its fastest pace in 22 months, though the bulk of price rises stemmed from higher food costs, which analysts have said should be transitory after a spell of bad weather across China this summer.
Markets have been worried that global weakness alongside the official campaign to rein in property prices and bank loans could weigh on China, but the suite of August data painted the picture of an economy that was gliding into the softest of landings.
"The August economic indicators and the recovery in industrial output in particular confirm the economy's stabilising trend and show that it has more internal drive," said Wang Han, an economist with research and advisory firm CEBM in Shanghai, on Saturday, Sept 11.
The uptick in inflation to 3.5 percent in the year to August from 3.3 percent in July was more or less in line with expectations.
"The headline number looks high, but it's all food. Non-food is low. Producer prices are still falling," said Tom Orlik, an economist with Stone McCarthy Research Associates in Beijing.
The gains in industrial output and money growth were more surprising.
Industrial production rebounded to rise 13.9 percent year on year after slowing to 13.4 percent in July. Economists polled by Reuters had forecast a rise of 13.0 percent.
The broad M2 measure of money growth sped up to 19.2 percent in August, blowing past expectations of a 17.5 percent increase. The rise came alongside slightly stronger-than-expected bank lending, with the stock of outstanding loans in the economy up 18.6 percent, the first acceleration in four months.
"IN A SWEET SPOT"
Investment was another data point that revealed unexpected strength, with capital spending in urban areas up 24.8 percent in the first eight months of the year compared with the same period in 2009. Economists had forecast a 24.5 percent rise.
Although the market has been focused on property tightening, Yu Song and Helen Qiao, economists at Goldman Sachs, asserted that the government had in fact been loosening policy by speeding up infrastructure investment in recent months.
"The magnitude of such a loosening was never clear, and yesterday's imports and today's fixed-asset investment and industrial production suggest the magnitude might be greater than we initially expected," they wrote in a note to clients.
The figures on Saturday followed a leap in imports that was reported on Friday, also underlining the momentum in China, which has already overtaken Japan as the world's second-largest economy by some measures. [ID:nTOE689024]
Stephen Green, an economist with Standard Chartered in Shanghai, did not see any pronounced loosening yet, but said the government could ease lending restrictions and approve more investment projects towards the end of the year to counter headwinds such as a U.S. slowdown.
"Add all that together, and we think that the economy, despite possibly some short-term volatility in sentiment as exports and housing decelerate, is in a bit of a sweet spot. Not too hot, and not too cold," he wrote in a note.
MORE TIGHTENING?
The data could raise questions about whether China's next policy move will be a tightening, not a loosening. Already, some investors suspect that the government will have to step up its crackdown on property speculators, with the latest numbers pointing to a jump in real estate transactions.
When the release date for the August numbers was moved up to Saturday from Monday, as originally scheduled, some media outlets speculated that the government could be paving the way to announce an increase in interest rates.
The National Bureau of Statistics dismissed such talk, saying it was merely trying to release the data as early as possible.
And economists, looking at the numbers, said price pressures could very well have hit their 2010 peak in August.
"I don't see any strong underlying inflationary pressure or any case for moving on interest rates," Orlik said.
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