Industrial output up 3.8% amid positive signs

By Wang Xu (China Daily)
Updated: 2009-03-13 07:44

Industrial production rose modestly in the first two months of the year amid positive signs that the country's massive stimulus package is starting to take effect.

Output edged up 3.8 percent in the first two months from the same period last year, compared to 5.7 percent in December, the National Bureau of Statistics (NBS) said yesterday.

The increase was driven by a 42.5 percent jump in cement production, the NBS said, reflecting the impact of the stimulus on new highways and other public works. Bank lending, vehicle sales and investment in factories and other fixed assets also rose.

Production grew 11 percent in February, partly because of more working days as the week-long Spring Festival holiday fell in January this year. The traditional festival fell in February last year.

Sun Mingchun, an economist with Nomura International, said the latest figures are "consistent with increased use of production capacity in many sectors", and suggests "a strong pick-up" in industrial activity.

"Strong domestic demand and abundant liquidity have prevented the economy from slipping further," he said.

Economic growth dropped to a seven-year low of 6.8 percent in the fourth quarter of last year.

The government rolled out a US$586-billion stimulus package in November to cushion the growing impact of the global financial crisis on China's economy. Policymakers also reduced borrowing costs for local enterprises and relaxed credit curbs to help prop up domestic investment.

The central bank said yesterday that banks extended 1.07 trillion yuan (US$157 billion) in new loans in February, up 827.3 billion yuan from the same period last year.

It is the second straight month that new loans exceeded 1 trillion yuan. In January, new loans hit a record 1.62 trillion yuan, double the figure from the same period last year.

The loan increases mirrored a 26.5-percent investment growth in the first two months.

Li Yizhong, minister of industry and information technology, said earlier this month that there were indications that many industries were recovering. For example, crude steel output increased 2.4 percent year-on-year in the first two months as inventories were drawn down. Steel output in February rose 7.9 percent from January.

However, some economists say the economy is likely to lose steam in the coming months, because exporters are hit hard by shrinking overseas demand.

Retail sales increased 15.2 percent in the first two months from a year earlier, down from 19 percent in December.

"The lift from the stimulus package could provide further support, perhaps in the second quarter," said Ken Peng, an economist with Citigroup. "But firms are still using up inventories, as weakening trade weighs significantly on the impact of the stimulus."