China's economic growth picked up last quarter as expected as a combination of breakneck investment and buoyant bank lending more than made up for a slump in exports.
But the 8.9% growth rate fell short of some of the more optimistic predictions in the market, and the government promptly said it would stick to the ultra-loose policies it has been following for the past year.
Andy Rothman, a macro strategist for brokerage CLSA in Shanghai, described the figure as strong but not strong enough to trigger a policy tightening, which he said was unlikely until the second half of 2010 at the earliest.
“China has begun, however, to implement its 'exit strategy', which is a gradual reduction in the level of stimulus (credit and infrastructure spending) in response to rising private investment and consumption,” Rothman said in a note to clients.
Last quarter's year-on-year growth exactly matched the forecast of a Reuters poll and was up from 7.9% in the April-June period and just 6.1% in the first three months of 2009 in the depths of the global downturn.
Goldman Sachs said quarter-on-quarter growth had in fact slowed to around 10.2% from the second quarter's annualized pace of 16.5%.
But with GDP expanding 7.7% in the first nine months, the government said it would now easily reach its target of 8% average growth for the year as a whole, widely regarded as the minimum needed to keep a lid on unemployment.
“We can say with certainty that achieving 8% GDP growth this year is completely assured. Without doubt,” said Li Xiaochao, the spokesman of the National Bureau of Statistics, which released the figures.
Li, though, quickly reaffirmed the policy status quo.
“We have stressed a proactive fiscal policy and appropriately relaxed monetary stance to keep consistency and stability in economic policy -- according to my understanding, that means no change in policy,” he said, restating the thrust of a cabinet statement issued on Wednesday.
A breakdown of growth so far this year showed just how effective Beijing's 4 trillion yuan ($585 billion) pump-priming package has been in galvanizing investment and putting the once-fanciful 8% growth goal target easily in reach.
Capital spending contributed 7.3%age points to headline growth of 7.7% in the first three quarters, while consumption accounted for 4.0%age points. Net exports, meanwhile, subtracted 3.6%age points.
With the United States and Europe emerging from recession with huge debt burdens that will weigh on consumption, global policymakers are looking to China to pull more weight by expanding domestic demand.
Thursday's data showed China doing just that.
Fixed-asset investment in urban areas, which has been the main driver of China's double-digit growth of recent years, rose by a third in the first nine months.
Whereas investment in the first half of the year was overwhelmingly government-led, capital spending by mostly private real estate developers is now surging in response to the ready availability of credit and growing confidence in the economy.
That confidence is being buoyed by rising incomes. Urban Chinese had 10.5% more disposable income in the first nine months, after adjusting for inflation, than a year earlier.
Retail sales rose 15.5% in the 12 months to September, accelerating from August's reading of 15.4% and exactly in line with market forecasts.
Industrial production growth quickened to 13.9% in the 12 months to September from 12.3% in August, beating the median market forecast of 13.3%. Daily steel output in September matched August's record, while iron ore production scaled a new high.
“Good figures. Economic growth has picked up very swiftly,”. said Wang Hu, an analyst at Guotai Junan Securities in Shanghai.
Most economists expect even stronger growth in 2010 given this year's relatively low base of comparison, the likelihood of a partial recovery in net exports and the fiscal stimulus already in the pipeline.
The median forecast of a Reuters poll published on October 18 was for 9.0% growth in 2010, but several banks have since taken an even rosier view.
In the currency market, non-deliverable forwards (NDF) over the past week had priced in a faster pace of yuan appreciation, partly in anticipation of a sparkling set of data. But the yuan lost a little ground in the NDF market after the figures and the Shanghai stock market was also underwhelmed. The main index ended the morning down 0.05%.
Although the economy has perked up, China is still mired -- technically -- in deflation. The consumer price index fell 0.8% in September from a year earlier, while producer prices were down 7.0%. Both figures were exactly as expected.
Both gauges have shown prices rising steadily month on month since July, but Li, the NBS spokesman, said inflation was not a problem for now. (Reuters)