Improvements in infrastructure investment and factory output were indicators of the beginning of an economic recovery gaining traction, as factory output was the strongest in nearly half a year.
China Export Growth
Other Strong Data
Industrial production for the month of October grew at a 9.6 percent rate, while retail sales grew 14.5 percent. Fixed asset investment spending increased 20.7 percent for the first ten months of the year, though the growth of new projects started is in the 30 percent plus range in the last couple of months. Fixed asset investment, which had been responsible for about half of GDP growth this year, was expected to continue to be strong due to the government’s fast tracking $157 billion in infrastructure and construction projects announced in the early fall. Industrial production growth had been lagging, and the consumer, viewed as an especially critical component in the economy by Beijing when the export trade was lagging, showed renewed strength. Both the infrastructure spending and the consumer spending speak to the issue of internal domestic demand, one of the key components the government is attempting to address for not only its short term but longer term goals of restructuring the economy.
China Industrial Production
China Retail Sales
The caution expressed by China’s government officials is echoed by most analysts. While some economists are gearing up GDP growth forecasts of higher than 8 percent for 2013, the consensus is more of a wait and see view. Growth for the fourth quarter may exceed a 7.5 percent rise in GDP, but there are still areas such as corporate earnings which have been lagging and will take time to rebound. This is particularly true in some of the larger SOEs, those in the industrial and commodity areas that have seen some still high input prices pressure selling prices, which caused profits to fall.The falling producer prices and their impact on corporate earnings will take some time to be fully reversed. China’s policy moves, which have been part of its gradualist response to the slowdown, appear to have begun working through China’s economy in a meaningful way.
Equities in China, which have seen values held down in the domestic market in Shanghai and other Greater China exchanges, have been showing promising signs notably on the ADR front. US investors who have carefully been searching for value in Chinese shares have been able to have some success. With the direction of China’s economy improving, now what remains is to see how consistent this accelerating growth will be. Many companies on the domestic front, in consumer intensive sectors, should feel the benefit first. And although neither China’s economy nor its equities will see a rise that’s straight up, the October economic data shows a promising direction.
Related: Vanguard Emerging Markets ETF (NYSEARCA:VWO), ProShares Ultra Short FTSE/Xinhua China 25 ETF (NYSEARCA:FXP), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), iShares MSCI Emerging Markets Index (NYSEARCA:EEM).
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