By Bloomberg News
Nov. 11 (Bloomberg) -- China’s industrial production and trade surplus climbed in October, indicating a strengthening recovery in the world’s third-largest economy that’s likely to amplify calls to let the yuan appreciate.
Today’s figures come days before leaders from the Asia- Pacific region gather in Singapore, and a visit by U.S. President Barack Obama to Beijing, where he plans to raise China’s currency policy. Premier Wen Jiabao has so far rebuffed pressure to loosen reins on the yuan, awaiting a bigger rebound in exports in an effort to secure social stability and job gains.
“For China, it is necessary and appropriate to allow the currency to be more flexible,” Asian Development Bank President Haruhiko Kuroda said in an interview with Bloomberg Television in Singapore today. “Crisis response by the Chinese authorities has been excellent,” and “they’ve brought about a very strong economic recovery,” he also said.
Production rose 16.1 percent from a year before, the most since March 2008, the statistics bureau said in Beijing today. Retail sales gained an annual 16.2 percent in October, it said. The trade surplus almost doubled from September, to $24 billion, as the slide in exports eased to the slowest pace this year.
Stocks rose in the region, with the MSCI Asia Pacific Index advancing 0.4 percent to 118.06 as of 12:04 p.m. Hong Kong time. The Shanghai Composite Index was down 0.6 percent at 3,158.19. Twelve-month non-deliverable yuan forwards rose 0.1 percent to 6.6285 per dollar, showing that traders predict about a 3 percent gain in the currency in the coming year.
Investment, Prices
In other figures today, urban fixed-asset investment climbed 33.1 percent in the first 10 months of this year, consumer-price declines eased and the supply of money climbed at a record pace. Faster gains in production and sales underscore forecasts for growth to exceed 10 percent this quarter, and for China’s economy to surpass Japan’s as No. 2 next year.
“The economy is strengthening, exports will be growing very soon and inflation is bottoming out -- in this environment the very loose policy has to change,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “Interest rates and the currency may begin rising from around March.”
Failure to withdraw the government’s monetary and fiscal stimulus measures in time may fuel asset-price inflation, risking a boom-bust cycle that would destabilize the economy, some analysts warn.
Zoellick on Risks
Chinese policy makers are aware of risks that may stem from credit growth, World Bank President Robert Zoellick said in a Bloomberg Television interview today. Officials face pressure to let the currency rise, he said separately in Singapore, where the Asia-Pacific Economic Cooperation group, which includes the U.S., Japan and China, holds a summit Nov. 14-15.
China has maintained the currency’s value at around 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years.
Analysts including Peng Wensheng, head of China research at Barclays Capital in Hong Kong, argue that a stronger yuan would help deepen a structural shift in the economy toward domestic demand, rather than manufacturing and exports. The Group of 20 last week reiterated its goal of making the world less dependent on both U.S. spending and Chinese savings.
China’s expansion has led Asia and the global economic recovery. Its gross domestic product expanded 8.9 percent from a year earlier in the third quarter, while U.S. GDP rose at an annual rate of 3.5 percent from the previous three months.
Japan’s Recovery
Japan, which has lagged behind its Asian neighbors, offered some sign that its own recovery may last today. A government report showed machinery orders surged 10.5 percent in September, more than twice the median estimate in a survey of economists.
China’s officials have already indicated they intend to tighten lending terms, and a central bank report today showed that credit growth eased in October. Banks extended 253 billion yuan ($37 billion) of new local-currency loans, compared with 516.7 billion yuan in September and a median projection of 370 billion yuan in a Bloomberg News survey.
Overseas demand for China’s products may also be recovering, as the statistics bureau said the trade surplus widened to about $24 billion in October, the highest level since December, excluding seasonal distortions in January and February.
The increase in industrial output was more than economists’ median forecast for a 15.5 percent gain and retail-sales growth was also ahead of estimates.
‘Loose’ Policy
Ma Delun, a deputy governor at the central bank, told reporters in Mumbai yesterday that the nation will maintain its “loose” monetary policy for now, citing the challenges of weak external and domestic demand. Alibaba.com Ltd., most of whose revenue is derived from Chinese exporters, expects the recovery in trade will weaken next year because of “flat” overseas demand, Chief Executive Officer David Wei said in an interview yesterday.
Obama said in an interview with Reuters Nov. 9 that he will bring up currency issues when he meets with President Hu Jintao and Wen in Beijing next week. The U.S. Treasury Department last month criticized “the recent lack of flexibility” in the yuan.
European Central Bank President Jean-Claude Trichet said last week a stronger Chinese currency would help the global economy, and the International Monetary Fund has called the yuan “significantly undervalued.” Japanese Vice Finance Minister Yoshihiko Noda told reporters last week it is “desirable for the yuan to be flexible.”
Consumer Prices
China’s consumer prices fell by 0.5 percent in October from a year earlier, the smallest drop since declines began in February, and producer prices dropped 5.8 percent, according to the bureau.
The increase in retail sales last month was the biggest since December excluding seasonal distortions in January and February. SAIC Motor Corp., the biggest domestic automaker, sold 240,300 vehicles as the nation’s passenger-car sales surged.
Moody’s Investors Service on Nov. 9 raised China’s debt rating outlook to “positive” from “stable,” citing the government’s success in steering the nation through the global crisis and strong financial position, including $2.273 trillion of foreign-currency holdings.
The Chinese economy will expand 10.5 percent in the fourth quarter from a year earlier, according to the median forecast in a Bloomberg News survey of economists.
Besides building 270,000 low-rent homes, 200,000 kilometers (120,000 miles) of rural roads and nearly 1,500 kilometers of railway under a $586 billion stimulus plan, China’s government has pressed banks to lend, flooding the economy with cash. The World Bank cautioned last week that the nation may risk asset bubbles and a “misallocation of resources.”
Urban property prices jumped 3.9 percent in October, the biggest increase in 14 months, the statistics bureau said yesterday. The value of sales jumped 79.2 percent in the first 10 months of 2009 from a year earlier.
--Li Yanping, Kevin Hamlin, Sophie Leung, Zeb Eckert, Keiko Ujikane, Shamim Adam and Mark Lee. Editors: Chris Anstey, John McCluskey
To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net
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