Last updated: November 9, 2012 8:36 am

China data herald end of slowdown

Chinese industrial production, investment and retail sales all accelerated in October, confirming that the world’s second-largest economy has ended its nearly two-year slowdown.

China is still on track for growth of under 8 per cent this year, which will likely be its weakest in more than a decade, but it now appears set for a relatively strong finish to 2012 thanks to an increase in government spending and looser monetary policy in recent months.

The positive numbers came at an opportune time for Beijing.

With the Communist party gathered for a congress that will unveil the country’s leaders for the next decade, officials can point to the rebound as evidence of their sound economic management.

Zhou Xiaochuan, central bank governor, made that case to reporters on Thursday, speaking a day before the data were released to the public but after he had already seen the numbers.

“October data are showing signs of improvement. The domestic economy is evolving in a good direction,” he said.

Industrial output growth rose to 9.6 per cent year on year in October from 9.2 per cent in September, while retail sales increased to 14.5 per cent year-on-year growth from 14.2 per cent.

Fixed-asset investment also picked up, as did newly started projects, an important predictor of future spending.

“The key question for investors is whether China’s economic growth has truly bottomed out. Based on October data… the answer is firmly yes” said Lu Ting, an economist with Bank of America-Merrill Lynch.

At the same time as Chinese economic activity improved in October, inflation slowed on the back of lower food prices. Analysts said this would give the government more space to deploy its pro-growth policy measures.

Consumer prices rose 1.7 per cent last month from a year earlier, down from September’s 1.9 per cent rise. Prices fell 0.1 per cent month on month, according to the national statistics bureau.

Inflation spiked last year in the wake of the government’s mammoth stimulus package that powered the economy through the global financial crisis. This year, when growth slowed more sharply than expected, Beijing took a conservative approach, approving more investment projects but refusing to shower the economy with cash as it did in 2009-10.

The central bank has used open market operations as its main tool, injecting liquidity on a weekly basis that can easily be withdrawn if prices start to rise too quickly.

For the time being, though, inflation is running at less than half of China’s official target of capping price rises at 4 per cent this year.

“The October CPI [consumer price index] confirms that inflation is currently not a main concern for the government. Policy easing will likely continue in Q4 [the fourth quarter] to support a growth recovery,” Zhang Zhiwei, an analyst with Nomura, wrote in a note to clients.

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