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September 12, 2009

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Home » Business » Economy

China trumps forecasts with strong August

CHINA'S economic performance in August beat expectations, suggesting a recovery in the world's third-largest economy remains dependent on strong domestic demand offsetting a slump in exports.

Manufacturing output, infrastructure investment, retail sales and bank lending all remained strong, according to data released yesterday. Declines in consumer and producer prices eased.

The only disappointment was a continuing drop in exports, which used to be the engine of China's growth.

China's industrial production in August rose 12.3 percent from a year earlier, its biggest jump in 12 months. Urban fixed-asset investment in the first eight months swelled 33 percent to 11.2 trillion yuan (US$1.63 trillion).

Retail sales advanced 15.4 percent to 1.01 trillion yuan in August. However, exports plunged 23.4 percent.

"Nearly all figures are stronger than expected, and that reflects the resilient domestic demand that keeps the momentum of recovery in the country," said Li Maoyu, an analyst at Changjiang Securities Co.

Consumer prices declined for a seventh straight month, but the drop was the slowest in five months. That points to a bottom in deflation, said Peng Ken, an economist at Citigroup.

Satisfying signals

China's Consumer Price Index, the main gauge of inflation, fell 1.2 percent from a year earlier, easing from declines of 1.8 percent in July and 1.7 percent in June.

"The key directional change in prices signals that the demand of consumption and production may pick up, while it also sets the tone for inflation expectations in the coming periods," Peng said.

The Producer Price Index, which measures factory-gate prices, retreated 7.9 percent from a year earlier last month, moderating from a decline of 8.2 percent in July.

Peng said he expects the CPI and PPI would return to positive territory as early as November, while other economists are forecasting that a return to inflation may not occur until the beginning of next year.

Still, yesterday's figures were heartening to investors. The benchmark Shanghai Composite Index shot up 2.2 percent.

"The economy's performance from January to August lays a good foundation for achieving the government's 8 percent growth target for this year," Li Xiaochao, spokesman for the National Bureau of Statistics, told a press conference in Beijing.

Stimulus priority

However, Li said it is still too early for China to worry about inflation because the priority right now remains to carry out an easy monetary policy and maximize the effect of the stimulus effort.

Premier Wen Jiabao said on Thursday that China's economic recovery is still not stable and that the government will continue its massive stimulus despite recent improvements.

The government is banking on its stimulus program to bolster domestic consumption and counter a stubborn decline in exports.

In August, China's exports fell 23.4 percent from a year earlier to US$103.7 billion, little changed from a month earlier. Economists had predicted a fall of 19 percent.

Imports tumbled 17 percent to US$87.9 billion on an annual basis last month, compared with the drop of 14.9 percent in July.

The trade surplus in the first eight months narrowed 19 percent to US$122.8 billion.

"Although both exports and imports were below expectations, we continue to believe that further improvements in trade are in order as the global environment improves," Citigroup's Peng said.


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