China’s Economy Accelerates AGAIN

About: (China Stock Digest )

Just imagine a U.S. politician saying the following about our economy: “Achieving a growth rate of 8 per cent for the year is basically no problem.”

No problem! That’s what Xiong Bilin, a top economic planner told reporters as he announced China’s latest growth numbers. Xiong, a deputy director of the National Development and Reform Commission (NDRC), China’s most powerful planning arm made that offhand remark as he unveiled China’s growth numbers for the first three quarters of 2009.

China’s economy expanded more than 7 per cent in the first nine months of the year according to the NDRC.

China’s acceleration curve means that it will certainly surpass the 2009 growth target of 8 per cent. Another powerful bureaucrat predicted over the weekend that China’s relentless economic expansion will exceed 9 per cent in the second half of the year. Official Q3 figures will be released Thursday.

Most observers credit the upbeat comments from Beijing for pushing the stock market to new highs. China’s main share benchmark, the Shanghai Composite Index, is now well above the psychologically important 3,000 mark.

What does this raw economic data tell us about the investment climate? The growth figures indicate that resilience in retail sales and industrial expansion is helping offset the blow from falling exports to China’s economy.

The future looks even better according to the Development Research Center, a cabinet-level bureaucracy. Yu Bin, a senior researcher at the center told a conference that, “The internal and external environment for China’s economic growth will be better next year.” We agree.

Although some critics don’t believe China’s statistical reports, our experience at the China Stock Digest is the opposite. We find that China routinely low-balls its economic forecasts. Using the familiar “under promise and over perform” mantra, Beijing’s mandarins avoid disappointment and usually surprise everyone with results on the upside.

Growth is in fact so strong that Beijing has unveiled a crackdown on industries that are growing “too quickly.” The government hopes to curb the expansion of six key sectors by withholding approval for new investment and by depriving them of financing. The industries affected are steel, cement, glass, coal-based chemicals, polysilicon (solar) and wind power equipment. China will order banks not to finance projects in these sectors.

There are also signs of excessive expansion in other industries which may soon face a clampdown. There is a danger of overcapacity in the aluminum, and shipbuilding industries, but for the time being they will not be subject to the same restrictions.