Chinese Data Show Signs of Stabilization

The latest data suggest sustained momentum in the Chinese economy, creating room for policy makers to focus more attention on reforms.

Industrial output rose 6.3% in January-February from one year earlier, while fixed-asset investment growth accelerated to 8.9% during the period, both beating market expectations, data from the National Bureau of Statistics showed Tuesday, Xinhua reported.

Growth of private sector investment, which accounted for more than 60% of total investment, accelerated from 3.2% in 2016 to 6.7% in the period, the fastest growth in a year.

Real estate investment increased a surprising 8.9% in the period, up from 3% over the same period of last year, despite tighter regulations to curb speculation and contain property bubbles.

Consumer inflation maintained mild growth of 1.7% while the unemployment rate stayed stable in January-February. However, growth of retail sales, a main gauge of consumer spending, fell below 10% for the first time in 11 years because of cooling auto sales, which fell 1% from a year earlier after the country raised purchase tax rates on small cars from 5% to 7.5% this year.

Most indicators were positive and improving, NBS spokesman Sheng Laiyun said at a press conference, adding the development in the first two months laid "a good foundation" for the country to realize its full-year targets.

China lowered its 2017 growth target to around 6.5%, the lowest target in a quarter of a century. The economy expanded 6.7% in 2016, its slowest growth in 26 years.

Picking Up Steam

Tuesday's data were the latest among a series of indicators that pointed to stability in the world's second-largest economy, including higher-than-expected factory activity, robust imports and producer inflation rising the fastest in nearly nine years, which boosted industrial profits.

The data offered fresh signs that the economy was stabilizing and picking up steam, said Deng Haiqing, chief economist with JZ Securities, adding that economic growth has reached a turning point in the L-shaped trajectory.

Supported by strong growth in fixed-asset investment and real estate investment, China's economy may grow 6.8% or more in the first quarter, Deng said.

Guotai Jun'an Securities was more optimistic, expecting the momentum to continue in March with real GDP growth likely to reach 7% in the first quarter and slow slightly in the second quarter.

Analysts said the stabilization enabled policy makers, who had been grappling with downward pressure, to focus more on longer-term gains through wide-ranging reforms.

Service-Minded

China has unveiled a new gauge aimed at tracking acupuncture, theme parks and other services as it tries to restructure the world’s second-largest economy in a shift from exports and manufacturing to consumption.

The country’s new “Index of Services Production” rose 8.2% in January and February, the NBS said in its maiden release of the monthly indicator, compiled from data it has long collected. It said the recent rise compared with 8.1% a year earlier.

Among the sectors that posted strong activity in recent months were media, telecommunications, railway transportation and the internet, it said.  Figures for the first two months of the year are usually combined to factor in the Lunar New Year holiday, whose slightly shifting dates from year to year skew comparisons.

“We need a composite index to fully grasp short-term changes in the services industry,” Sheng Laiyun, a spokesman at the statistics bureau, told reporters.

Sheng said the index, which tracks output without deducting costs, would be useful to companies and economic planners. It won’t include services activity in agriculture, support services in the mining sector or equipment repair in manufacturing industries where good data is difficult to obtain, he added.

Statisticians say services and their contribution to growth are very difficult to track, even in advanced economies, given that they often involve small companies that change or go out of business quickly. Also, it isn’t clear how the gauge is compiled. “It is difficult to judge this index because the NBS released limited information about its methodology and no information on its history,” wrote Goldman Sachs in a research note.