China November factory output jumps to eight-month high

BEIJING Sun Dec 9, 2012 1:16pm IST

BEIJING (Reuters) - Growth in China's factory output and retail sales jumped to eight-month highs in November as consumer inflation bounced off 33-month lows in the latest sign that its economy is snapping out of a protracted slump.

Analysts said Sunday's data showed China is enjoying an enviable mix of benign inflation and rebounding economic growth that allows Beijing to stand still on monetary and fiscal policies, or switch to an easier stance if needed.

"The Chinese economy is now in a sweet spot and can stay in the sweet spot through the first half of 2013," said Ting Lu, an economist at Bank of America-Merrill Lynch. "Beijing will be happy to sustain the current policy stance."

Data from the National Bureau of Statistics showed output from Chinese factories beat forecasts to climb 10.1 percent in November from a year ago, its best performance since March.

Annual growth in retail sales also surprised by jumping 14.9 percent in November, while fixed asset investment rose 20.7 percent in the first 11 months of the year, a shade below forecasts.

The batch of activity data came after an inflation report out earlier on Sunday showed China's consumer price index rose 2 percent in November from a year ago -- just under forecasts for a 2.1 percent gain -- as vegetable prices soared.

But economists said the rise in consumer prices from near three-year lows was far from worrying, especially since it is well under Beijing's annual 4 percent inflation target.

"We expect consumer inflation to not see a big rebound until the first quarter of next year," said Jiang Chao, an analyst at Guotai Junan Securities in Shanghai.

"Therefore, the central bank may stick to its current policy stance and we see little chance of further (policy) loosening towards the year end."

"DURABLE RECOVERY"

China's economy has slowed for seven consecutive quarters, hurt by wilting export growth and lackluster domestic demand. Growth hit a low of 7.4 percent between July and September and is poised this year for its weakest annual showing since 1999.

But things are looking up, due in part to policy easing by the central bank.

The People's Bank of China cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011, freeing an estimated 1.2 trillion yuan ($193 billion) for lending.

"We expect such (economic) recovery to be durable and will at least extend into the first half of next year, though the pace of recovery will remain mild," said Sun Junwei, an economist at HSBC in Beijing.

As growth revives, the central bank is keeping an eagle eye on inflation, its policy priority in normal times.

It has not cut interest rates or RRR since July and has instead added short-term cash to the banking system through open market operations, a move analysts say underlines its worries about consumer and property price inflation.

As China's economy breaks away from central planning and as wages rise on average at least 10 percent each year, the central bank has warned inflation will be the biggest long-term risk, a point reiterated by Governor Zhou Xiaochuan last month.

Indeed, November's data showed price momentum was gathering even in factories.

Factory-gate prices fell 2.2 percent in November from a year earlier, its ninth straight month of declines but easing from October's 2.8 percent annual drop, boding well for firms struggling with falling profits.

(Reporting by Aileen Wang and Koh Gui Qing; Editing by Paul Tait)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Sino-Indian Ties

REUTERS SHOWCASE

India-China Relations

India-China Relations

India and China look to put knotty relations on new footing.  Full Article 

Importing Iron Ore

Importing Iron Ore

As mining curbs bite, India offers market to glut-hit iron ore.  Full Article 

Lower Output

Lower Output

IOC cuts refinery output as rains hit fuel demand - source.  Full Article 

Drug Approval

Drug Approval

Epirus, Ranbaxy win India approval for arthritis drug copy.  Full Article 

Farming and Technology

Farming and Technology

Climate smart farmers get tech savvy to save India's bread basket.  Full Article 

Rajan Speaks

Rajan Speaks

RBI chief Rajan says limiting reliance on foreign debt.  Full Article 

India-Vietnam Ties

India-Vietnam Ties

India tightens Vietnam defence, oil ties ahead of China Xi's visit.  Full Article 

Debt & Equity Deal

Debt & Equity Deal

KKR to lend $175 million to GMR Infrastructure - source.  Full Article 

Preparing for IPO

Preparing for IPO

Alibaba boosts IPO as demand strengthens.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage