China Industrial Output Growth Slows on Export Curbs

China Industrial Output Growth Slows on Export Curbs

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPiH8zk2U7bM&refer=home

By Nipa Piboontanasawat and Zhang Dingmin

Sept. 13 (Bloomberg) -- China's industrial production rose 17.5 percent in August, slowing for a second month after the government increased taxes on exports.

The increase was less than July's 18 percent gain and the 17.9 percent median estimate of 23 economists surveyed by Bloomberg. The statistics bureau released the data by e-mail.

The slowdown may be insufficient to deter the central bank from raising interest rates for a fifth time this year after inflation surged to an almost 11-year high and the trade surplus widened to the second-highest on record. The flood of cash from overseas sales has helped to push up property and stock prices.

``The economy still risks overheating as inflation accelerates and asset bubbles get bigger,'' said Paul Tang, chief economist at Bank of East Asia Ltd. in Hong Kong.

The People's Bank of China last week ordered lenders to set aside bigger reserves for the seventh time this year. It has raised rates four times since March.

Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong, expects a 0.27 percentage point increase in the one-year lending rate to 7.29 percent by year's end. Wang also says the proportion of deposits that lenders must set aside as reserves may rise by 0.5 percentage point to 13 percent.

China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years.

`Not Enough'

``Raising interest rates alone won't be enough,'' said Ha Jiming, chief economist at China International Capital Corp. in Beijing. ``The appreciation of the yuan needs to accelerate.''

China's trade surplus widened 33 percent in August from a year earlier to $24.97 billion. A stronger currency would push up export prices and ease money inflows.

The yuan rose to the highest since a dollar link was scrapped more than two years ago, strengthening 0.11 percent to 7.5137 against the U.S. currency as of 11 a.m. in Shanghai. The currency has gained 10.1 percent versus the dollar since the fixed exchange rate ended in July 2005.

For the first eight months, industrial production rose 18.4 percent from a year earlier. That compares with the 16.6 percent gain for all of 2006.

Automobile output climbed 21.7 percent in August, slowing from a 32.7 percent increase in the previous month. Cement production rose 13.3 percent after an 11.6 percent gain. Output of steel products increased 23.7 percent, close to the previous month's 23.9 percent growth.

Export Tax Rebates

The slower pace of output growth in August is ``what the government wants to see because they've been trying to prevent the economy from overheating,'' Ha said.

Overseas shipments had their smallest gain in five months in August after the government reduced export tax rebates in July. Growth in lead production will slow this year because of tax changes and raw-material shortages, the China Nonferrous Metals Industry Association said this week.

Tomorrow's urban fixed-asset investment data will be the nation's final major economic indicator this month.

The median estimate of economists surveyed by Bloomberg News is for a 26.5 percent increase in factory and property spending through August from a year earlier. That would be close to the 26.6 percent pace of the first seven months.

Excessive investment may lead to manufacturing overcapacity if the economy suddenly slows.

Foreign direct investment in China rose 12.8 percent through August from a year earlier to $41.9 billion, the Commerce Ministry said today.

China's consumer prices rose 6.5 percent in August from a year earlier, the biggest increase since December 1996, on food costs. The key CSI 300 Index of stocks has almost quadrupled in the past year and housing prices in 70 Chinese cities jumped 8.2 percent last month from a year earlier.