China output, sales up as stimulus takes effect

By AFP

July 15, 2010 Updated Jun 14, 2009 at 9:41 PM CDT

China's May industrial output and retail sales both grew at a faster pace than in previous months, the government has said, as massive stimulus measures introduced since last year kicked in.

The figures come as the Asian giant's vital export sector has been hit by the global slump, which has slashed demand in key overseas markets, leading Beijing to seek ways of boosting domestic spending.

Industrial production, a key gauge of activity in factories and plants across China, grew 8.9 percent in May, the National Bureau of Statistics said -- compared to a 7.3 percent increase in April and 8.3 percent in March.

Retail sales meanwhile grew 15.2 percent in May, it said.

"The rapid improvement of domestic demand is reflected in industrial output. That is the main reason for the growth," said Hao Daming, a Beijing-based economist with Galaxy Securities.

"We expect the (industrial output) figure will further accelerate in the rest of the year but the increase will be limited, mainly because of very weak exports."

Monthly growth in industrial output hit lows of just over five percent at the end of last year as the world slowdown bit, falling from a 16 percent rise in May of 2008, the bureau said.

The government late last year launched an unprecedented four-trillion-yuan (585 billion dollar) spending package focused on infrastructure investment and boosting domestic demand as a hedge against the export troubles.

Exports have continued to suffer, with the government saying on Thursday they plunged 26.4 percent in May, the seventh straight monthly decline.

Thursday's announcement that fixed-asset investment grew by 32.9 percent year-on-year during the first five months of 2009 also reflected concerns that the massive stimulus spending was unsustainable, economists said.

However, Friday's industrial output and retail data appeared to show the government's stimulus measures were having the desired effect.

May's production of cement, a key component in construction projects, increased 13.5 percent from a year earlier, slightly faster than April's growth.

Automobile production meanwhile rose 29 percent to 1.14 million units.

"To a large degree, the improvement in end-demand for metal-intensive capital and consumer items has been stoked by the government?s targeted incentives," said Jing Ulrich, a Hong Kong-based economist with JP Morgan.

She cited a cut in sales taxes on automobile purchases.

"Despite a somewhat mixed picture, we anticipate higher quarter-on-quarter industrial production growth going forward," she added.

In another sign of increasing domestic consumption, the 15.2 percent increase in Chinese retail sales -- the main gauge of consumer spending -- came in higher than the 14.8 percent rise seen in April.

For all of last year, retail sales were up 21.6 percent.

The World Bank has forecast economic growth of 6.5 percent in 2009, which would be China's lowest growth rate since 1990. The country experienced double-digit growth between 2002 and 2007.

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