22 Oct 2009
Oct. 22 (Bloomberg) -- China's economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession.Gross domestic product rose 8.9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing today. The median of 34 estimates in a Bloomberg News survey was for a 9 percent gain. Separate reports showed industrial production and retail sales accelerated in September.
Today's figures may spur policy makers to consider how to withdraw record fiscal and monetary stimulus next year without triggering a slowdown in the world's third-biggest economy. Qin Xiao, chairman of China Merchants Bank Co., this week warned that the measures risk inflating asset bubbles, saying it's "urgent that China shifts from a loose monetary policy."
"It's all a question now of making sure they don't overdo the stimulus," said Stephen Green, head of China research at Standard Chartered Plc. "The probability of stronger guidance to banks on lending growth is rising."
China's stocks dropped as equities retreated across the region. The Shanghai Composite Index was down 0.6 percent as of 11 a.m. local time; the MSCI Asia Pacific index was 0.5 percent lower. Against the dollar, the yuan was little changed, trading at 6.8267.
Cabinet Statement
China's cabinet said late yesterday that it will maintain stimulus measures even after the economy exceeded officials' expectations for the first nine months of the year. The State Council also signaled that inflation concern will be an increasing focus of policymaking.
Surging auto sales helped industrial production to rise 13.9 percent in September from a year earlier, the fastest pace in more than a year, today's data showed. Wolfsburg, Germany- based Volkswagen AG, the biggest overseas carmaker in China, sold a record 150,000 vehicles in the nation in September.
Urban fixed-asset investment climbed 33.3 percent in the first nine months from a year earlier, the statistics bureau said, as the $586 billion stimulus plan spurred the construction of roads and power plants. Retail sales gained 15.5 percent in September.
Consumer prices fell 0.8 percent in September from a year earlier, the smallest drop since declines began in February. Prices rose 0.4 percent in September from August. Producer prices slid 7 percent from a year earlier.
Annual Target
There is a "very good chance" that China will meet its economic growth target of 8 percent for this year, Vice Premier Li Keqiang told a conference in Beijing today. For the first nine months of 2009, GDP gained 7.7 percent from a year before.
The nation has countered an 11-month slide in exports with the stimulus package and a record $1.27 trillion in new loans this year. Policy makers also, from July last year, halted the yuan's gains against the dollar, providing support to exporters battered by the contraction in overseas demand.
China's advance is aiding the global economy. Japan's government today reported that the country's exports fell at a slower pace in September in part as the drop in shipments to China halved from the previous month. Hiroshima, Japan-based Mazda Motor Corp. said today it sold a record 91,000 vehicle in China in the six months through September.
The third-quarter GDP gain underscores China's role as the world's fastest-growing major economy. U.S. government figures next week are projected to show a 3.1 percent annual rate of expansion in the third quarter from the previous three months.
Private Demand
Premier Wen Jiabao's government now needs to oversee a transition to encouraging business and household spending to pick up the lead from government stimulus, analysts said.
"Compared with pouring money into the economy, draining money from the economy is a much tougher job for central banks," Qin, the chairman of China's fifth-largest bank by market value, wrote in the Financial Times. "The dilemma is this: if we tighten monetary policy, there is a high possibility of a ‘second dip' next year; and if we continue the loose policy, another asset bubble might be not far away."
In yesterday's State Council statement, China's government said "the policy focus of the next few months is to balance the need to maintain stable and relatively fast growth, the need to adjust the economic structure and the need to better manage inflationary expectations."
That "change in rhetoric" suggests a tighter policy stance may be on the way, with an increase in banks' reserve requirements possible in the first quarter of next year, said Mark Williams, a London-based economist at Capital Economics Ltd.
ADB's Call
The Asian Development Bank has warned that keeping stimulus measures for too long risks diverting money into stocks and real estate, eroding bank asset quality and stoking inflation. Banking regulator Liu Mingkang warned yesterday of rising credit risks for banks and also told them to be ready for shifts in government policy, while the central bank said on Oct. 20 that inflation pressures are gradually building.
The 68 percent gain in the Shanghai Composite Index this year and a 73 percent increase in property sales in the first nine months highlight the risk of asset bubbles.
"This emergency intervention has been executed very fast and very successfully," Yolanda Fernandez Lommen, chief China economist at the Asian Development Bank in Beijing, said in an interview last week. "The question now is how long can the economy sustain the stimulus package and when is the moment to exit these policies?"
An exit may not be easy without unnerving investors: A plunge in July loan growth sent the benchmark stock index down more than 20 percent in August.
"China's recovery is based on bank lending and infrastructure investment, not exports," said Alaistair Chan, an economist with Moody's Economy.com in Sydney. "Exports remain weak. The government will not remove stimulus measures soon."
