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Slower climb in output signals weak demand

CHINA'S industrial production grew at a slower pace of 3.8 percent in the first two months of this year on an annual basis due to worsening exports, but last month's figure showed an improving trend.

The January-February data, released by the National Bureau of Statistics yesterday, came far below market forecast of about 7 percent. Output grew 5.7 percent in December and 5.4 percent in November.

The slower growth reflected sluggish external demand for China's manufactured products.

Output jumped 11 percent last month, the bureau said, partly due to the implementation of China's 4-trillion-yuan (US$585 billion) infrastructure-heavy fiscal stimulus package. The bureau didn't issue January figure.

"The positive effects of the government's aggressive stimulus measures are gradually becoming apparent," said Jing Ulrich, JPMorgan's head of China equities, describing last month's figure as an "improving trend."

Cement output jumped 42.5 percent last month, according to the bureau. Vehicle production rose 22.9 percent while steel product output was up 8.3 percent.

Other indicators such as power supply and the purchasing manager index already signaled manufacturing was recovering last month.

Since most projects started only at the end of last month, industrial output growth could rebound this month, said Merrill Lynch economist Ting Lu.

A CITIC Securities report said the worst may be over for China's industrial sector as domestic demand will drive industrial output in coming months, offsetting weaker external demand.

It forecast March's growth to be higher than 3.8 percent.


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