Figures reinforce evidence that it’s leading others on recovery path
Reuters 12 June 2009
(BEIJING) Chinese investment surged by more than expected in May on the back of government pump-priming and a recovery in the property sector, helping to offset persistent weakness in demand for its exports.
The strong investment figures provided fresh evidence that the world’s third-largest economy is leading others on the path to recovery with its fiscal firepower, while the greater-than- expected fall in exports underlines its continuing vulnerability to events outside its control.
Investment accounts for a much greater portion of economic growth than net exports, meaning strength there is likely to help offset weakness in external demand.
Investment in urban areas in fixed assets such as apartment buildings and roads rose 32.9 per cent in the first five months from a year earlier, compared with 30.5 per cent in the first four months, the National Bureau of Statistics said yesterday.
Economists said that translated into a 40 per cent leap in May alone. Adjusted for inflation, the increase was even greater because Chinese prices have been falling for several months.
‘I think this is a welcome sign of momentum building in the Chinese economy, and it’s good for the global outlook,’ said David Cohen with Action Economics in Singapore.
Economists attributed the strength in investment to the government’s 4 trillion yuan (S$847 billion) economic stimulus plan, announced in November, and an associated record surge in credit growth from the state-dominated banking system.
Markets focused more on those signs of improvement than on the weak trade figures, which showed that exports fell 26.4 per cent from May 2008, while imports fell 25.2 per cent - the seventh month in a row that they have both fallen, and both at an accelerated pace from April.
The May trade surplus of US$13.4 billion was below forecasts of US$14.8 billion. Economists had expected a 23.1 per cent annual fall in exports and a 22 per cent drop in imports.
‘External demand remains weak as the US and European economies are still contracting, so it’ll be hard for China’s exports to see a quick rebound,’ said Feng Yuming, an economist with Orient Securities in Shanghai.
After seasonal adjustment, however, exports rose 0.2 per cent in May from April and imports rose 4.4 per cent, the customs administration said.
Moreover, Sherman Chan with Moody’s Economy.com in Sydney said trade flows today reflect orders placed several months ago, when the global economy was in dire straits.
‘If you look back at, say, half a year ago, business sentiment was very, very weak and also household consumption was subdued around the world, which is why China’s exports would have been weak,’ she said.
Therefore, investment is a better leading indicator because it represents money entering the economy in the actual reporting month. Here, economists saw greater grounds for optimism.
Spending on new projects in the first five months surged 96 per cent from a year earlier, while investment in railways soared 110.9 per cent.
The real estate sector, which accounts for almost a quarter of fixed investment, saw growth of 6.8 per cent, up sharply from 4.9 per cent in the January-April period.
Investment and consumption both accounted for 4.1 percentage points of China’s 9 per cent gross domestic product growth last year, while net exports were responsible for just 0.8 per cent.
However, some economists cautioned that the government-led investment boom could not last forever and is no silver bullet for the economy.
‘There is little that the government can do about weak external demand, except to offer exporters support through tax benefits and VAT rebates,’ said Jing Ulrich, managing director and chairman of China equities with JP Morgan in Hong Kong. -- Reuters
2 comments:
Surge in China investments beats forecasts
Figures reinforce evidence that it’s leading others on recovery path
Reuters
12 June 2009
(BEIJING) Chinese investment surged by more than expected in May on the back of government pump-priming and a recovery in the property sector, helping to offset persistent weakness in demand for its exports.
The strong investment figures provided fresh evidence that the world’s third-largest economy is leading others on the path to recovery with its fiscal firepower, while the greater-than- expected fall in exports underlines its continuing vulnerability to events outside its control.
Investment accounts for a much greater portion of economic growth than net exports, meaning strength there is likely to help offset weakness in external demand.
Investment in urban areas in fixed assets such as apartment buildings and roads rose 32.9 per cent in the first five months from a year earlier, compared with 30.5 per cent in the first four months, the National Bureau of Statistics said yesterday.
Economists said that translated into a 40 per cent leap in May alone. Adjusted for inflation, the increase was even greater because Chinese prices have been falling for several months.
‘I think this is a welcome sign of momentum building in the Chinese economy, and it’s good for the global outlook,’ said David Cohen with Action Economics in Singapore.
Economists attributed the strength in investment to the government’s 4 trillion yuan (S$847 billion) economic stimulus plan, announced in November, and an associated record surge in credit growth from the state-dominated banking system.
Markets focused more on those signs of improvement than on the weak trade figures, which showed that exports fell 26.4 per cent from May 2008, while imports fell 25.2 per cent - the seventh month in a row that they have both fallen, and both at an accelerated pace from April.
The May trade surplus of US$13.4 billion was below forecasts of US$14.8 billion. Economists had expected a 23.1 per cent annual fall in exports and a 22 per cent drop in imports.
‘External demand remains weak as the US and European economies are still contracting, so it’ll be hard for China’s exports to see a quick rebound,’ said Feng Yuming, an economist with Orient Securities in Shanghai.
After seasonal adjustment, however, exports rose 0.2 per cent in May from April and imports rose 4.4 per cent, the customs administration said.
Moreover, Sherman Chan with Moody’s Economy.com in Sydney said trade flows today reflect orders placed several months ago, when the global economy was in dire straits.
‘If you look back at, say, half a year ago, business sentiment was very, very weak and also household consumption was subdued around the world, which is why China’s exports would have been weak,’ she said.
Therefore, investment is a better leading indicator because it represents money entering the economy in the actual reporting month. Here, economists saw greater grounds for optimism.
Spending on new projects in the first five months surged 96 per cent from a year earlier, while investment in railways soared 110.9 per cent.
The real estate sector, which accounts for almost a quarter of fixed investment, saw growth of 6.8 per cent, up sharply from 4.9 per cent in the January-April period.
Investment and consumption both accounted for 4.1 percentage points of China’s 9 per cent gross domestic product growth last year, while net exports were responsible for just 0.8 per cent.
However, some economists cautioned that the government-led investment boom could not last forever and is no silver bullet for the economy.
‘There is little that the government can do about weak external demand, except to offer exporters support through tax benefits and VAT rebates,’ said Jing Ulrich, managing director and chairman of China equities with JP Morgan in Hong Kong. -- Reuters
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