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July 17, 2009

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Industrial output sees quicker 10.7% pace

CHINA posted a quicker pace of 10.7 percent year on year in its industrial production growth last month, led by strong domestic demand amid further evidence that the economy is recovering strongly.

But an economist raised concerns that the growth rate at state-owned enterprises was low despite massive government stimulus measures.

Last month's data, released by the National Bureau of Statistics yesterday, beat a market consensus of 9.5 percent. The growth rate accelerated from 8.9 percent in May and 3.8 percent in the January-February period, which was lumped together to avoid distortion due to the Spring Festival holiday.

For the first half this year, industrial output rose 7 percent, compared with 16.3 percent in the same period last year.

Cause for concern

However, industrial output at state-owned companies grew only 1.7 percent in the first half, the bureau said, despite the 4-trillion-yuan (US$586 billion) stimulus measures to boost demand and a surge in bank lending to government companies.

This could be "something that may give cause for concern to authorities and banks," said Nikhilesh Bhattacharyya, an associate economist at Moody's

Also, industrial profits tumbled 22.9 percent to 850.2 billion yuan in the year's first five months, the bureau said, although there were signs that the situation appeared to be improving.

Still, Bhattacharyya said industrial data are "encouraging" aside from these concerns.

"With external demand stabilizing and likely to pick up next year and domestic demand encouraging, the outlook for the industrial sector also appears to have improved considerably compared to around the beginning of 2009 when things looked quite dire," he wrote in a note.

Urban fixed-asset investment remained robust, jumping 35.3 percent last month and 33.6 percent in the first half, the bureau said, as China built more railroads and other public projects. In the first half last year, it rose 26.8 percent.

Bank of America Merrill Lynch economist Ting Lu said he expects continued growth in FAI in the second half.

By region, the west led the charge, rising 42.1 percent in the first half, faster than the 38.1-percent growth for the central region and 26.7 percent for the most-developed eastern areas.


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