China Sees Faster Production Gains in Fourth Quarter

By Sophie Leung

Oct. 27 (Bloomberg) -- China predicted an acceleration in industrial production and reported a 190 percent jump in overseas investment for the third quarter, underscoring the nation’s role in driving a global economic recovery.

Investment by Chinese firms abroad rose to $20.5 billion in July through September, almost triple a year earlier, the Ministry of Commerce said in a statement. Industrial output may rise 16 percent in the fourth quarter, Ministry of Industry and Information Technology official Zhu Hongren said in a briefing, compared with a 13.9 percent pace of gains in September.

Policy makers may be encouraging Chinese companies to invest abroad in part to help counter pressure for the nation’s currency to appreciate, analysts said. Investors are betting on the yuan to appreciate in the coming year as China’s growth accelerates from its weakest pace in a year.

“China’s growth is certain and stable,” said Zhu Jianfang, an economist at Citic Securities Co. in Beijing. “Chinese policy makers see pressure for yuan to appreciate, so they encourage companies to invest abroad to strike the balance.”

Today’s figures came after the government last week reported that China, the world’s third-biggest economy, expanded 8.9 percent in the third quarter, the fastest pace in a year.

The economy is showing more signs of stabilizing, the National Development and Reform Commission said in a statement on its Web site today, adding that the government’s stimulus measures have been effective.

Yuan Bets

Yuan forwards, which rose to a 14-month high last week, suggest the currency will gain 2.3 percent against the dollar in the coming year. The 12-month offshore contracts were down 0.2 percent today to 6.6730. The yuan climbed 21 percent over three years after the government scrapped a fixed exchange rate in July 2005.

China’s policy on yuan will remain stable until the nation’s exports recover and improve, Jiang Jianjun, an official in the foreign trade department of the Ministry of Commerce told an online forum today.

The projection for China’s production gains encouraged some investors to sell the dollar on confidence that the global recovery will diminish demand for the U.S. currency as a haven. The dollar rose as much as 0.2 percent and traded at $1.4894 per euro at 7:55 a.m. in London.

Stephen Roach, chairman of Morgan Stanley Asia, today said investors are wrong to bet that China will restrain its unprecedented stimulus after the economy accelerated in the third quarter.

‘Growth Surprise’

“The Chinese really are fixated on one thing and one thing alone which is social stability -- they don’t want to take a risk of another negative growth surprise” slowdown, Roach said in an interview on Bloomberg Television in Hong Kong.

By contrast, India, Asia’s third-largest economy after Japan and China, today signaled it’s preparing to raise borrowing costs as inflation pressures build. The Reserve Bank of India ordered banks to keep more cash in government bonds, and central bank Governor Duvvuri Subbarao said “it may be appropriate to sequence the ‘exit’ in a calibrated way.”

Inflation in China isn’t a big risk for the nation in the foreseeable future, China central bank Deputy Governor Yi Gang said, the China Securities Journal reported separately today. The government will keep the yuan exchange rate basically stable, the Beijing-based newspaper reported, citing comments the People’s Bank of China’s Yi made at Peking University yesterday.

The nation’s diversification of its foreign currency reserves shouldn’t cause short-term fluctuations in exchange rates, the newspaper cited Yi as saying.

Investment Abroad

Overseas investment by Chinese companies in the first nine months of the year rose 0.5 percent to $32.9 billion, the Beijing-based Commerce Ministry said on its Web site. The figures don’t include financial transactions.

China Investment Corp., the nation’s sovereign wealth fund that holds almost $300 billion, bought an 11 percent stake in Astana, Kazakhstan-based JSC KazMunaiGas Exploration Production for about $939 million, after spending $2.75 billion to acquire Indonesia’s PT Bumi Resources and Noble Group Ltd. in September.

China’s investment in Africa in the first half of the year rose 78.6 percent to $875 million from a year earlier, the Ministry of Commerce said in a statement on its Web site today. Chinese government will continue to encourage companies to invest abroad, the statement said.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.netNerys Avery at navery2@bloomberg.net