Array of figures adds to optimism over China economy

By Alan Wheatley and Zhou Xin
BEIJING (Reuters) – A surge in construction and real estate spending, a double-digit increase in power use, a rise in foreign direct investment and a bullish export forecast added on Thursday to growing confidence about China’s economic prospects.
The barrage of figures came a day after data showed a marked improvement in imports and exports in September — although they were still down from year-earlier levels — as well as robust money and credit growth.
Together, they paint the picture of an economy pulling decisively out of a deep downturn triggered a year ago when the collapse of Lehman Brothers almost brought the global financial system to its knees.
“The September data have made the trend of China’s economic recovery more apparent,” said Mingao Shen, Citi’s chief China economist.
Comments from the Commerce Ministry reflected the growing optimism. The ministry has doggedly stressed the problems facing China’s exporters, even though they have gained global market share this year as consumers seek out cheap made-in-China goods.
But on Thursday, spokesman Yao Jian accentuated the positive.
“Going into the fourth quarter, we expect that the pace of decline in exports will narrow further, and I think we’ll quite possibly see positive annual growth in some months,” Yao said.
Consistent with industry’s improving fortunes, power usage in September rose 10.24 percent from a year, the China Electricity Council reported. It was the first double-digit growth in 16 months.
Overseas firms’ confidence in China was also likely to lead to a continued recovery in foreign direct investment, Yao told a news conference.
For the first nine months of 2009, FDI fell 14.2 percent to $63.8 billion (39.2 billion pounds). But in September alone FDI rose 18.9 percent from a year earlier to $7.9 billion (4.8 billion pounds).
POLICY SHIFT NEXT YEAR?
State-driven investment has been the main force behind China’s growth so far this year as Beijing rolls out a 4 trillion yuan ($585 billion) stimulus package weighted towards transport infrastructure, affordable housing and public works.
But private property developers are doing more and more of the heavy lifting. With the industry accounting for more than 20 percent of total fixed-asset investment in China, that is just what the government wants.
Real estate investment rose 17.7 percent in the first nine months from a year earlier, up from 14.7 percent in the January-August period, the National Bureau of Statistics said.
Economists at Bank of America Merrill Lynch said that worked out at an acceleration in the monthly growth rate to 37.0 percent in September, year on year, from 34.6 percent in August.
New starts and the total of floor space under construction increased by 55.9 percent and 66.5 percent, respectively, from September 2008 levels, they noted in a report for clients.
“Property investment growth is likely to remain elevated and be a major growth driver for the rest of 2009,” they wrote.
Confirmation that the recovery is gaining traction is likely to come in next Thursday’s gross domestic product report for the third quarter. According to a Reuters poll of economists, annual growth probably accelerated to 8.9 percent from 7.9 percent in the April-June period.
And a survey by Dutch bank ING released on Thursday showed 88 percent of Chinese investors polled last quarter expected the economy to improve further in the final three months of the year.
“The remaining China bears must have been steamrollered by yesterday’s data,” said Tim Condon, ING’s chief Asia economist.
Condon said he expected the People’s Bank of China to respond to the data flow with continued fine-tuning of monetary policy and an interest rate increase in the first quarter of 2010.
Shen at Citi said the rate rise cycle might begin in the second quarter as Beijing shifted from what he described as an ultra pro-growth policy. But policymakers would keep a moderately pro-growth stance.
So, for instance, loan growth might subside in 2010 to the range of 20-25 percent from about 33 percent this year but would remain well above the historical average of 17 percent, he said.
(Editing by Jan Dahinten)