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China economic data tops forecasts; policy intact

Chinese industrial output and investment accelerated in August, suggesting the economic recovery is on a solid course, but Beijing is still unlikely to tap on the policy brakes too hard for fear of derailing it.

Industrial output grew at a 12-month high of 12.3% in August from a year earlier, jumping from 10.8% in July and beating expectations of a 12.0% rise, data issued by the National Bureau of Statistics showed on Friday.

Annual urban fixed-asset investment growth also picked up, reaching 33.0% for the first eight months, notching up from 32.9% in January to July and beating forecasts of 32.5%.

“The data shows that the Chinese economy continues to strengthen overall,” said Rob Subbaraman, chief Asia economist with Nomura in Hong Kong.

“There's a pretty good configuration of data: on the activity side there is further strengthening and on the inflation side there is still negative inflation, so I don't think there's a real urgency to tighten policy aggressively.”

Despite the signs of strength, analysts expect policymakers to proceed cautiously to avoid pulling on the reins of monetary and fiscal policy too quickly, after a steady flow of assurances from Beijing that it would not exit from stimulus too soon.

Premier Wen Jiabao drove that point home on Thursday, saying the government would unswervingly apply its policy mix of massive government spending and loose money because the economic recovery remains fragile.

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, carried on that refrain on Friday, telling reporters at a meeting of the World Economic Forum that the recovery was not yet solid, even though GDP growth picked up to an annual 7.9% in the second quarter.

Figures for money supply and lending growth surprised on the upside, potentially providing comfort that the taps of credit will not be turned off too sharply.

Worries about a pull-back in lending following a record burst in the first half contributed to stock market jitters in August, when Shanghai shares fell over 20%. The stock market was up 0.8% in mid-morning trade, compared with being up 0.4% before the data.

Banks extended 410.4 billion yuan in new local-currency loans in August, up from 355.9 billion in July and more than expected.

Annual growth in the broad M2 measure of money supply picked up a touch to 28.5% in August from 28.4% in July, beating forecasts of 28.4%.

Deflationary pressures eased as food prices rose. Consumer prices fell only 1.2% in August from a year earlier compared with a decline of 1.8% in July, tempering the pace of deflation.

“The overall trend of the economy is still stable, and the numbers for the fourth quarter will be better than a year ago,” said Zhu Jianfang, chief macroeconomist at CITIC Securities in Beijing.

“There is no possibility they will raise interest rates in the fourth quarter. At least, we'll have to wait until the second quarter next year.” (Reuters)