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China Exits Slowdown as Quarterly Growth Tops Forecasts

By Bloomberg News
January 18, 2013 2:27 AM EST 15 Comments
Pedestrians and shoppers walk past Chinese national flags displayed outside a department store in Beijing, China.
Photographer: Tomohiro Ohsumi/Bloomberg
Pedestrians and shoppers walk past Chinese national flags displayed outside a department store in Beijing, China.

China’s economic growth accelerated for the first time in two years as government efforts to revive demand drove a rebound in industrial output, retail sales and the housing market.

Gross domestic product rose 7.9 percent in the fourth quarter from a year earlier, the National Bureau of Statistics said in Beijing today. That compared with the 7.8 percent median estimate in a Bloomberg News survey and 7.4 percent in the previous period. Industrial output in December rose a more-than- expected 10.3 percent and fixed-asset investment for the year gained 20.6 percent.

The recovery adds to evidence that the global economy is improving, after U.S. data yesterday showed housing starts at a four-year high, European bond yields receded from crisis levels and Japan announced a $116 billion stimulus. To sustain growth, China’s incoming premier, Li Keqiang, may need to confront the fading effects of government support, a likely pickup in inflation and rising risks from shadow banking.

“China’s recovery is in quite good shape,” Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview. “Domestic pro-growth policies are likely to wane in mid-2013,” yet demand from abroad may pick up in the second half, he said.

Improving investor confidence in China’s outlook has lifted mainland stocks and the currency. The Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, has advanced 18 percent from an almost four-year low on Dec. 3, including a 1.4 percent rise today.

Currency Gain

The yuan has appreciated 0.23 percent against the dollar this year as of yesterday, the best start since 2009, on signs China’s growth is accelerating. The currency touched 6.2124 per dollar on Jan. 14, the strongest level since the government unified the official and market exchange rates at the end of 1993. It was little changed today at 6.2153 as of 3:04 p.m. in Shanghai.

Zhu said he’s considering raising his forecast for 2013 GDP growth to 8.2 percent from 8 percent.

A separate report today showed China’s new home prices rose in December in 54 of 70 cities the government tracks, the most in 20 months.

The economy expanded 7.8 percent for the full year, the least in 13 years, according to statistics bureau data, compared with the 7.7 percent median estimate in a Bloomberg survey of 32 economists. Growth may pick up to 8.1 percent this year, according to analysts polled by Bloomberg in December.

Growth Target

Outgoing Premier Wen Jiabao set a 2012 target of 7.5 percent in March, the lowest goal since 2004. The government will keep the target at 7.5 percent this year, Bloomberg News reported on Dec. 18, citing two bank executives and a regulatory official briefed on the matter.

The increase in industrial production compared with the 10.2 percent median forecast in a Bloomberg survey of 44 analysts and was the fastest pace since March. Retail sales climbed 15.2 percent from a year earlier, compared with the median analyst estimate of 15.1 percent and a 14.9 percent increase the previous month.

Fixed-asset investment excluding rural households for the January-to-December period compared with a 20.7 percent gain in the first 11 months of the year.

“The GDP data reconfirms that China is enjoying cyclical recovery,” Yao Wei, China economist with Societe Generale SA, said on Bloomberg Television.

Accurate Estimate

Hong Kong-based Yao, ranked by Bloomberg as the most accurate forecaster for quarterly GDP, was correct today. She raised her estimate for expansion in the first three months of 2013 to 8.2 percent from 7.8 percent and expects momentum to fade in the second half, according to a note released yesterday.

A report last week showed exports rose 7.9 percent in 2012 after a 20.3 percent rise in 2011.

China’s statistics chief cautioned that the economic rebound doesn’t mean the nation is likely to return to the 10 percent growth of the past two decades. “I personally think a growth rate between 7 and 8 percent is a fair rate decided by changing and unchanged factors and a rate that will facilitate change in the growth model and structural adjustment,” Ma Jiantang said at a press briefing today.

The nation also faces demographic challenges. Ma said China’s working-age population fell last year for the first time in a “quite long period,” describing the drop as a matter of “great importance.” The decline of 3.45 million compares with a “still huge” labor force of 937 million, which “will remain as China’s biggest resource advantage,” he said.

Income Gap

China’s income gap narrowed for the fourth straight year in 2012, Ma said, the first time in more than a decade that the government has released the politically sensitive figure. The Gini coefficient of 0.474 is above the 0.4 level used by analysts as a gauge of the potential for social unrest.

The central bank has paused from its monetary easing since July after two interest-rate cuts and three reductions in lenders’ reserve requirements starting in November 2011. At the same time, the government has accelerated investment-project approvals, trimmed fees for exporters and increased spending on infrastructure.

The investment is helping companies including China Railway Group Ltd., which said this week that it won 11 contracts valued at 29.8 billion yuan ($4.8 billion) to build urban railways, bridges and other infrastructure.

Elsewhere in the Asia-Pacific region, New Zealand’s consumer prices fell 0.2 percent in the three months through December from the previous quarter.

U.K. Retailers

In Europe, U.K. retail sales including fuel rose in December, based on economist estimates. Italy will release industrial orders and sales data for November, while Poland’s statistics department may say producer prices fell from a year earlier for a second month in December, Bloomberg surveys showed.

U.S. consumer confidence probably rose this month after falling to a five-month low in December, according to a Bloomberg survey before the release of the Thomson Reuters/University of Michigan consumer sentiment index.

China’s growth rebound may support the country’s new leadership headed by Xi Jinping as it tries to balance the need to create jobs, maintain social stability and spread the benefits of the nation’s growth with a pledge to overhaul the economy. Xi and Communist Party No. 2 Li Keqiang, set to become premier in March, have signaled a shift in priorities for the world’s second-biggest economy that will entail higher “quality and efficiency” of expansion.

“The property market is indeed surprisingly stronger than we expected,” Societe Generale’s Yao said. “If housing prices start to rise very quickly, then the government may want to do something again in terms of tightening.”

--Nerys Avery, Zheng Lifei. With assistance from Kevin Hamlin, Zhou Xin and Zhang Dingmin in Beijing, Ailing Tan, Sharon Chen and Shamim Adam in Singapore, Fion Li and Rishaad Salamat in Hong Kong and Sunil Jagtiani in New Delhi. Editors: Scott Lanman, Nerys Avery

To contact Bloomberg News staff on this story: Nerys Avery in Beijing at Navery2@bloomberg.net Zheng Lifei in Beijing at lzheng32@bloomberg.net;

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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