China reports accelerated spending in first two months

BEIJING: China’s capital spending accelerated in the first two months of the year as the government’s 4 trillion yuan (US$585bil) stimulus package kicked in, providing further tentative evidence of recovery in the world’s third-largest economy.

Investment in urban areas in fixed assets such as roads, power plants and apartment buildings rose 26.5% in January-February from a year earlier, easily beating market forecasts of a 21.5% increase.
“The figure shows the economy is doing very well and Beijing’s stimulus package is working,” said Jiang Chao, an analyst at Guotai Junan Securities in Shanghai.

In all of 2008, urban fixed-asset investment was up 26.1%; in the first two months of 2008, it rose 24.3%. The National Bureau of Statistics did not issue a figure for February alone. The combined number is meant to smooth out distortions caused by the timing of the Lunar New Year, which fell in January this year but in February last year. Workers standing on the edge of a wall with skyscrapers in the background in Beijing yesterday. The government announced that fixed asset investment in Chinese cities was up 26.5% in January-February compared with the same period in 2008. - AFP

Yu Song and Helen Qiao at Goldman Sachs said the rebound in fixed asset investment was occurring more quickly than they had expected. “So today’s FAI (fixed-asset investment) data have increased upside risks to our domestic demand forecast,” they said in a note to clients. A breakdown of the data pointed to the initial impact of the stimulus plan unveiled in November, even though the government so far has allocated only 230 billion yuan of the funds.

Spending on projects backed by the central government rose 40.3% from a year earlier, while investment in transport, including railways, rose a whopping 210.1%. China’s rush to expand its overcrowded rail network exacted a price yesterday. A construction site along a high-speed line linking Beijing and Shanghai collapsed, burying at least seven workers, state media reported.
“There’s no doubt that fixed-asset investment will be on an upward trend in the first half of this year, given the capital being injected into infrastructure and public housing,” said Lu Zhengwei, chief economist at Industrial Bank in Shanghai. But Lu said he was worried that the momentum would flag as the year wears on if private capital spending fails to pick up. Investment in real estate was just 1% higher than in the first two months of last year, compared with a 20.9% increase in all of 2008. China’s property market is glutted and developers have struggled to obtain financing, slowing housing starts.

“The sharp drop in real estate sector spending reflects sagging private sector investment, and we don’t see a recovery until 2010,” Lu said. Some other figures recently suggest China is holding up better than other major economies in the face of the deepest global slump in more than 70 years.

Manufacturing is improving after a sharp decline, according to surveys; bank lending is surging; cement and steel output rose 17% and 2.4% respectively, in the first two months, while the decline in power demand slowed; and car sales topped 800,000 in February for the first time in eight months. But other statistics suggest China is not out of the woods yet. Exports and imports have been falling; inventories of raw materials such as coal have started to mount again; and a rise in prices of steel and other metals proved to be short-lived. — Reuters