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Growth in FAI indicates stimulus plan working

CHINA'S spending on fixed assets such as roads and factories accelerated in the first two months of this year, an indication the government's 4-trillion-yuan (US$585 billion) stimulus package has taken effect.

Urban fixed-asset investment jumped 26.5 percent in January and February from a year earlier to 1.03 trillion yuan, the National Bureau of Statistics said yesterday. This easily beat the market consensus forecast of 21.5 percent. In fact the investment measured in real terms has accelerated even more as inflation in February declined for the first time in six years.

"It's such a key positive signal. We now expect further good investment and industrial activity figures for the first quarter," Guosen Securities analyst Ren Zeping said.

Urban investment rose 26.1 percent in 2008 and 24.3 percent in the first two months last year.

The January-February data weren't broken down for individual months to smooth out any distortion caused by the Spring Festival holiday, which fell in January this year and in February last year.

The investment growth was driven by spending on projects backed by the central government, which jumped 40.3 percent from a year earlier. By sector, transport-related investment, including railways, surged 210.1 percent, the bureau said.

Goldman Sachs said in a note that while it has factored a rebound in FAI into its China growth forecast for this year, "the rebound is coming more quickly than we initially expected."

The investment data is consistent with a surge in loan growth in the first two months and recovering power consumption since mid February, which suggest a quicker recovery for China than other major economies amid the global slump.

But other statistics indicated China's economy is not yet in a solid recovery.

Exports, its main growth driver, tumbled 25.7 percent in February, a steeper pace than the 17.5-percent drop in January.

Economists cautioned the positive effects of the stimulus on industrial, credit and investment data may start to wane after April, adding downward stress on China's economy in the next quarter.


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