China Investment Growth Likely Quickened on Government Spending

By Bloomberg News

June 9 (Bloomberg) -- China’s spending on roads, power grids and property probably accelerated for a fourth month as the government stepped up spending to revive the world’s third- largest economy.

Urban fixed-asset investment grew 31 percent in the five months through May from a year earlier, according to the median estimate of 16 economists surveyed by Bloomberg News. That compares with 30.5 percent in the first four months. Industrial output may rise 7.7 percent, up from 7.3 percent in April.

Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package has helped manufacturing expand, sparked record vehicle sales and increase property transactions. Still, the government said on May 27 that the drop in overseas sales is the biggest challenge facing the economy and that outlook for employment remains “grim.”

“China’s economic recovery is well on track as investment and consumption continue to gain momentum,” said Xing Ziqiang, a Beijing-based economist at China International Capital Corp.

Exports probably dropped for a seventh month, falling 23 percent in May compared with 22.6 percent in April. Imports likely slid 22 percent, leaving a trade surplus of $14.9 billion, according to 15 economists. The government will release trade and investment figures on June 11.

Since the stimulus was announced in November China has built 20,000 kilometers (12,430 miles) of rural roads, 445 kilometers of highway and 100,000 square meters (1.08 million square feet) of airport buildings, the National Development and Reform Commission said on May 21.

New Construction

More projects are breaking ground as the nation starts to build 5.2 million low-rent homes and offers housing subsidies to help accommodate 7.5 million poor urban families by 2011.

Chongqing Changan Automobile Co. started building a plant in Chongqing that will produce as many as 300,000 vehicles a year on completion in 2012, the carmaker said on June 2.

China’s State Council is also taking measures to help exporters. The finance ministry yesterday raised export rebates on some electronics, machinery, steel products and toys to boost shipments.

Growth of retail sales probably accelerated to 15 percent from 14.8 percent in April, according to the median estimate of 16 economists. China last month said it will boost trade-in subsidies for vehicle purchases by five times and add TVs, refrigerators and computers into the trade-in program to spur consumer spending and to offset losses overseas.

Stock-Market Gains

“The wealth effect from rising equity prices, rising inflation expectations and further government support could prompt a broad-based pickup in household consumption,” said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. China’s benchmark Shanghai Composite Index has gained more than 50 percent this year.

New loans may have stabilized after cooling from the record of 1.89 trillion yuan in March. Banks probably lent as much as 600 billion yuan last month, compared with 592 billion yuan in April, according to state media reports. M2, the broadest measure of money supply, may have expanded 25.9 percent, from 26 percent in April, according to the median estimate of 15 economists surveyed by Bloomberg News.

Economic growth slipped to 6.1 percent in the first quarter, the weakest pace in almost a decade. The government cautioned on June 3 that a recovery isn’t yet solid, saying the global crisis may still hurt the economy.

Producer prices probably fell a record 6.9 percent after a 6.6 percent drop in April, and the decline in consumer prices may ease to 1.3 percent from 1.5 percent.

The economy will expand 7.5 percent this year, according to the median estimate of 14 economists, up from 7.1 percent forecast in February.

“This is not a nation of 1.3 billion people who are just sitting around waiting for another order of toys to come in from Wal-Mart,” Carl Weinberg, chief economist of High Frequency Economics in New York, wrote in an e-mailed report yesterday. “China’s economy is broad-based, diverse and driven by domestic consumer demand and investment spending.”

--Li Yanping. Editors: David Tweed, Lily Nonomiya

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net