China's Factory, Property Spending Growth Quickens

By Kevin Hamlin and Nipa Piboontanasawat

Aug. 15 (Bloomberg) -- China's factory and property spending growth accelerated, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February.

Urban fixed-asset investment rose 27.3 percent to 7.22 trillion yuan ($1 trillion) through July from a year earlier, the statistics bureau said, after gaining 26.8 percent in the first half. That was more than the 26.6 percent median estimate of 19 economists surveyed by Bloomberg News.

Today's figure, the last economic statistic for July, adds to surging exports, easing inflation and the strongest retail- sales growth since 1999 in underscoring the strength of the world's fastest-growing major economy. Weaker industrial- production growth may signal softening demand for Chinese goods as the U.S., Japanese and European economies falter, encouraging the government to maintain its halt on gains by the yuan.

``These numbers throw more mud in the water,'' said Paul Cavey, an economist with Macquarie Securities Ltd. in Hong Kong. ``The overall figures are still quite strong but the underlying momentum is showing something of a downturn.''

The yuan fell 0.2 percent to 6.8701 against the dollar as of 2:45 p.m. in Shanghai. The currency is heading for a fourth weekly loss, the longest stretch since a peg to dollar was scrapped in 2005. The government has halted gains this quarter after a 6.6 percent increase in the first half that was double the pace of a year earlier.

Textiles, Garments

The government has raised loan quotas for banks to help small and medium-sized businesses and increased tax rebates for exports of textiles and garments.

China's economic expansion has slowed for four quarters, prompting Communist Party leaders to put a bigger emphasis on maintaining growth and protecting jobs. Government statements last month dropped references to a ``tight'' monetary policy.

The economy expanded 10.1 percent in the three months through June. Inflation has eased from a 12-year high of 8.7 percent in February to 6.3 percent last month.

The Japanese, German and French economies all contracted in the second quarter, reports this week showed, underscoring the weakening of the global economy that is dimming the outlook for China's exports.

China is rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and the earthquake that killed more than 69,000 people.

Olympic Closures

Anhui Conch Cement Co., China's biggest maker of the building material, said yesterday that first-half profit had climbed 46 percent on increased demand. The company is expanding in Sichuan.

Investment growth in July was trimmed by construction-site closures to clear the air in Beijing and other Olympic Games host cities, said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong.

Spending growth for last month alone was 29.5 percent, the same as in June, JPMorgan Chase & Co. estimated. The government doesn't release monthly figures.

The pace ``will help alleviate concerns about the magnitude of China's economic slowdown,'' said Jing Ulrich, the company's chairwoman of China equities in Hong Kong. ``This boom in investment was likely fueled by post-earthquake reconstruction and the rebuilding of infrastructure following the severe snowstorms that afflicted southern China in February.''

Shenhua Energy Projects

The economy's thirst for power, causing energy shortages in some provinces, is also driving investment. Shenhua Group Corp., China's biggest coal producer, said today that it had started construction of 134 billion yuan of coal, power and coal-to-fuel projects in Inner Mongolia.

Railway spending climbed 35.8 percent in the first seven months to 105 billion yuan, up from 20.4 percent for the first half. China plans to spend 3.8 trillion yuan on transportation infrastructure in its five-year plan running through 2010.

Growth in spending in real-estate development slowed to 30.9 percent from 33.5 percent.

``Property transaction volumes have collapsed since the fourth quarter of last year and developers are having cash-flow problems,'' said Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong.

The number of new projects rose by 12,368 in the first seven months of 2008 from a year earlier to 144,467. Spending on those projects fell 2.9 percent to 4.672 trillion yuan.

Ferrous-metals investment climbed 31.6 percent from 27.5 percent. Non-ferrous metals rose 40.5 percent after increasing 39.2 percent.

The investment numbers aren't adjusted for inflation.

Spending growth may have slowed to 14 percent in July from a year earlier, compared with 16 percent in the second quarter, after stripping out inflation, said Merrill Lynch's Lu.

Today's investment figure compares with the 25.8 percent increase for all of last year, when inflation was 4.8 percent.

To contact the reporter on this story: Kevin Hamlin in Hong Kong at or khamlin@bloomberg.net; Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net