China Industrial-Output Growth Slows as Exports Slide

By Li Yanping

March 12 (Bloomberg) -- China’s industrial-production growth slowed in the first two months of the year as exports slid at a record pace. Bank lending jumped as the nation’s 4 trillion ($585 billion) stimulus began to take effect.

Output rose 3.8 percent in January and February from a year earlier, slowing from a 5.7 percent increase in December, the statistics bureau said today. New lending quadrupled in February to 1.07 trillion yuan from a year earlier, the central bank said.

“The export engine has died: China is in a ‘help themselves’ mode, pump-priming like crazy to increase fixed- asset investment and keep retail spending going,” said Joseph Tan, chief Asian economist at Credit Suisse Private Bank in Singapore. “I think they’re going to pull it off.”

Premier Wen Jiabao is aiming to achieve 8 percent economic growth this year through tax cuts and spending on roads, railways and houses. The surge in loans and a more-than- estimated 26.5 percent jump in urban fixed-asset investment in January and February may foreshadow a rebound in industrial- output growth.

The Shanghai Composite Index closed 0.2 percent lower, paring its gain this year to 17 percent. The yuan traded at 6.8393 against the dollar as of 3:14 p.m. in Shanghai, from 6.8404 yesterday.

Industrial production rose 11 percent in February alone, buoyed by extra working days in the month compared with a year earlier because of the timing of the Lunar New Year holiday.

Outlook for Output

“There is no doubt that industrial output will continue to recover, boosted by the strong growth in investment and bank loans,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. He said concerns remained about whether stimulus projects alone could sustain the economy if exports keep deteriorating.

The government faces rising unemployment, falling house prices and the risk of an increase in soured loans.

Exports declined a record 25.7 percent in February, consumer prices fell for the first time in six years, and a report today showed retail sales grew at the slowest pace in two years in the first two months.

Parkson Retail Group Ltd., a Beijing-based department-store chain, said last month that profit growth slowed in 2008 and this year will be “very challenging.”

Real-Estate Spending

Spending on real-estate development grew only 1 percent in the first two months from a year earlier as home prices fell, figures showed yesterday.

Among more upbeat indicators, banks have responded to calls by the government to support the spending package, helping the broadest measure of money supply to climb at the fastest pace in more than five years in February.

“The strong credit and money growth bodes well for a policy-driven V-shaped recovery by mid-year, making China the first to recover among major economies,” said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.

Still, rapid loan growth may not continue and the surge raises the risk of defaults and the poor allocation of funds, said Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong.

The world is looking to see if China’s growth can support commodity prices and sustain demand for the products of its Asian neighbors. Benchmark steel prices in China surged 46 percent between November and February and iron-ore imports by the world’s largest buyer of the steelmaking ingredient gained 22 percent last month.

Construction Equipment

China’s construction equipment sales may jump 20 percent in the second half as orders recover on the government stimulus, Lonking Holdings Ltd., the nation’s biggest maker of four- wheeled earthmovers, said this week.

China’s vehicle sales surged 25 percent in February after the government cut taxes on some models. General Motors Corp. has raised its forecast for the auto industry’s sales growth in China this year to as much as 10 percent from less than 3 percent.

Gross domestic product grew 6.8 percent in the fourth quarter, the least since 2001, with industrial production expanding 5.4 percent in November, the weakest pace in almost a decade. The International Monetary Fund expects the economy to grow 6.7 percent this year, the smallest gain since 1990.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net