Slight Easing in China's Output Growth

From Bloomberg this morning:


China's factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world's fastest-growing major economy.

Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November's increase at about 26 percent, down from October's 30.7 percent.

Industrial output grew at the year's slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.

``It's a slight moderation in connection with the tightening efforts but growth is still very strong,'' said David Cohen, an economist at Action Economics in Singapore. ``Another interest-rate increase before the end of the year would be consistent with avoiding overheating.''

The yuan traded at 7.3712 at 12:07 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.

The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.

Nuclear Reactors

Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.

Spending in the first 11 months rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada's gross domestic product last year. China's projects include plans to become the world's biggest producer of nuclear reactors, building about 30 of them by 2020.

``It's too early to call it a slowdown -- we need three months of data,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.

Investment accounted for 42.5 percent of China's gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.

Exports, Industrial Production

More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.

Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.

Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.

Spending on fixed assets is ``too rapid'' and has ``become a prominent problem,'' the State Council, or cabinet, said last month. The pace of growth has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.

The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.

China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.