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Fastest Chinese production growth in 17 months

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Chinese industrial production rose at a 10.4 per cent annual rate in August – the strongest growth in 17 months.

Chinese retail sales rose at a 13.4 per cent annual rate in August – the strongest growth in eight months.
What does it all mean?

The run of firmer economic data readings continues in China. When the figures are viewed together, the data suggests that China has moved past the flat spot caused by financial system consolidation and now the economy appears to be gaining momentum.

The latest data out of China is encouraging for investors across the globe, especially when viewed against the background of better economic readings in Europe, the US and Japan. The hope is that the major economies will feed off one another, lifting overall world economic growth.

Clearly a stronger global economy is in Australia’s interests, being a major exporter of raw materials. The Aussie dollar is stronger as a consequence but this represents a two-edged sword for Australian businesses.

Today’s activity data from China, together with figures showing the best Australian business confidence survey in over two years, means that the Reserve Bank can remain on the interest rate sidelines. No further stimulus is needed in Australia.

It is early days, but the latest economic data suggests that the Federal Election was a good one to win. The Australian economy has scope to lift, while the outlook for the global economy is brightening.

What do the figures show?
Chinese economic data

Retail sales rose at a 13.4 per cent annual rate in August, above the forecast average (+13.4 per cent) and above the 13.2 per cent annual rate in July. Retail sales rose 1.17 per cent in the month – the slowest in six months.

Spending on construction & decoration materials was 24.2 per cent higher over the year with jewellery up 21.8 per cent and furniture up 21.3 per cent. But sports & entertainment good sales were down 0.5 per cent over the year. Car production was up 7 per cent.

Industrial production rose at a 10.4 per cent annual rate in August, above the forecast average (9.9 per cent) and up on the 9.7 per cent annual rate in July. Production rose 0.93 per cent in the month – the strongest in four months.

Computer equipment was up 17.7 per cent on a year earlier, plate glass was up 15.7 per cent and steel was up 15.6 per cent. But Railroad, marine, aerospace and other transportation equipment manufacturing was up just 2.2 per cent.

Urban investment rose at a 20.3 per cent annual rate in the first eight months of 2013, above forecasts of a 20.2 per cent increase and above the 20.1 per cent growth recorded for the seven months to July. Investment in fixed assets rose 23.3 per cent over the first eight months of 2013, in line with the growth rate for the seven months to July. Investment lifted 1.6 per cent in the month.

Real estate development investment in August was 19.3 per cent higher than a year ago with residential up 19.2 per cent, offices up 40 per cent and commercial space up 26.5 per cent.

Why is the data important?

China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications?

The latest Chinese economic data buoys the outlook for mining and agricultural businesses and service companies. The only downside is that the Aussie dollar is lifting from recent lows.

The risk is that the Chinese economy is riding another ‘up wave’, potentially catching out mining companies that have been shelving plans to expand and add to production capacity.

The Reserve Bank will be encouraged by both the domestic and Chinese economic data released today. Interest rate settings are solidly on hold.

Published: Thursday, September 12, 2013

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