Chinas economy grows 8.9%, to continue with stimulus steps

Written by Bloomberg | Updated: Oct 24 2009, 05:22am hrs
Chinas economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession.

Gross domestic product rose 8.9% in the third quarter from a year earlier, the statistics bureau said in Beijing today. The median of 34 estimates in a Bloomberg News survey was for a 9% gain. Separate reports showed industrial production and retail sales accelerated in September.

The dollar headed higher and Asian stocks dropped on concern that the acceleration in Chinas growth will spur policy makers to consider withdrawing record fiscal and monetary stimulus in coming quarters. Qin Xiao, chairman of China Merchants Bank Co, this week said its urgent for the central bank to tighten policy to avert asset-price bubbles.

Its all a question now of making sure they dont overdo the stimulus, said Stephen Green, head of China research at Standard Chartered Plc. The probability of stronger guidance to banks on lending growth is rising.

The MSCI Asia Pacific stock index slid 0.5% to 120.56 as of 12:30 pm in Hong Kong. Chinas benchmark Shanghai Composite Index was little changed after losing as much as 0.8% earlier on Thursday. The dollar benefited from its status as a haven, advancing 0.2% to 91.17 yen and $1.4986 per euro. The yuan was little changed, trading at 6.8270.

While Chinas Cabinet said late on Wednesday that it will maintain stimulus measures, it also signaled that inflation concern will be an increasing focus of policymaking. The State Council said the economy exceeded officials expectations for the first nine months of the year.

Surging auto sales helped industrial production to rise 13.9% in September from a year earlier, the fastest pace in more than a year, Thursdays data showed. Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold a record 150,000 vehicles in the nation in September.

Urban fixed-asset investment climbed 33.3% in the first nine months from a year earlier, the statistics bureau said, as the $586 billion stimulus plan spurred the construction of roads and power plants. Retail sales gained 15.5% in September.

Consumer prices fell 0.8% in September from a year earlier, the smallest drop since declines began in February. Prices rose 0.4% in September from August. Producer prices slid 7% from a year earlier.

There is a very good chance that China will meet its economic growth target of 8% for this year, vice-premier Li Keqiang told a conference in Beijing on Thursday.

For the first nine months of 2009, the economy grew 7.7%, with domestic demand accounting for all of the advance. Consumption, including household spending, contributed 4 percentage points of the total and investment added 7.3 percentage points. A decline in net exports of goods and services shaved off 3.6 percentage points.

By contrast, trade contributed 2.6 percentage points to economic growth in 2007, before the global crisis slashed overseas demand for Chinese products. The nation has countered an 11-month slide in exports with the stimulus package and a record $1.27 trillion in new loans this year. Policy makers also, from July last year, halted the yuans gains against the dollar, providing support to exporters battered by the contraction in overseas demand.