China's Industrial Production, Money Supply Grow 19%
May 13 (Bloomberg) -- China's industrial production rose at close to the fastest pace in more than a year in April, while money supply exceeded the central bank's target for a 16th month, adding impetus to the government's efforts to cool the economy.
Production and M2, China's broadest measure of money supply, both grew 19 percent from a year earlier, according to statements from the National Bureau of Statistics and the central bank. Imports jumped 43 percent, contributing to China's fourth monthly trade deficit, the commerce ministry said.
The government is trying to engineer a gradual economic slowdown by curbing lending and investment in industries such as carmaking, cement and steel where rapid expansion has led to shortages of raw materials and energy, and clogged transport links. Failure of the measures may force the central bank to raise interest rates, possibly hurting consumer spending and other industries.
Today's figures ``increase the likelihood of a rate increase,'' said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong. ``The measures so far haven't been sufficient and they need to do more tightening in the coming few months.''
The yield on China's benchmark seven-year bond fell 5 basis points to 4.93 percent at the midday break in Shanghai. A basis point is 0.01 percentage point. The index of government bonds traded on the Shanghai stock exchange rose 0.2 percent to 92.37.
Autos, Cement
The People's Bank of China said Tuesday it will keep monetary policy ``appropriately tight,'' adding that it expects efforts to cool industrial expansion to have an impact in the second half. Growth will remain high in the coming three months because of the effect of last year's SARS outbreak, which depressed activity in the comparable months, it said.
Total lending increased 20 percent to 18.1 trillion yuan ($2.2 trillion) in April, the central bank said today.
The central bank yesterday stepped up efforts to curb money- supply growth by announcing the start of a bond repurchase program to soak up more of commercial lenders' cash. The bank on April 25 raised the amount of cash banks must set aside as reserves for the third time in seven months to curb lending growth, a month after raising interest rates on some loans to commercial banks.
Steel
China's benchmark one-year lending rate, currently 5.31 percent, was last raised in July 1995. HSBC's Qu forecasts rates will rise as much as 1 percentage point once the consumer-price index reaches close to 5 percent. Inflation accelerated to 3 percent in March, close to a 6 1/2-year high. April numbers have yet to be released.
Chinese banking regulators last month told banks to stop lending to industries including autos that are expanding too rapidly, while the State Council, or cabinet, raised the amount of money companies must put up for steel, cement, aluminum and real estate projects.
Production of autos surged 35 percent in April, cement rose 17 percent, steel products increased 23 percent and aluminum gained 20 percent, the statistics bureau said today. Those gains outpaced a 16 percent increase in power generation.
The government last month ordered a halt to work on a $1.3 billion steel plant being built by Jiangsu Tieben Iron & Steel Co. in eastern Jiangsu province, saying land used for the project was stolen and bank loans to pay for it were obtained using forged documents. Ten officials involved in the project were arrested. Companies including Maanshan Iron & Steel Co. say they welcome the clampdown.
Foreign Investment
``The government's more strict policies on bank lending will hurt small rivals who are flooding the market with low-quality products,'' said Su Jiangang, vice president with Maanshan Iron & Steel Co., China's largest public-traded steelmaker listed in Hong Kong. ``I believe the government will continue to encourage bigger companies to expand because China has shortages of high-end steel products, including car sheets and H beams.''
Maanshan Steel, based in China's eastern Anhui province, plans to invest 19 billion yuan almost doubling its capacity by 2007 and will finance half of this using its own capital, Su said.
Investment from abroad is also being encouraged. Both DaimlerChrysler and Volkswagen AG last week announced plans for new car plants in China during Chinese Premier Wen Jiabao's state visit to Germany.
Foreign direct investment into China increased 10 percent to $19.6 billion in the first four months of this year, the commerce ministry said today. Contracted investment, a sign of future investment, jumped 54 percent to $47 billion.
Car Plants
DaimlerChrysler, the world's fifth-largest automaker, said it will start making Mercedes-Benz luxury cars in Beijing. The Stuttgart, Germany-based carmaker plans to produce as many as 25,000 E-Class and C-Class models at a plant there.
[How many German jobs will this cost? - Mish]
Volkswagen, Europe's largest carmaker, said it and partner Shanghai Automotive Industry Corp. plan to build a factory near Shanghai capable of producing 150,000 vehicles a year. The Wolfsburg, Germany-based company controls more than a third of the Chinese auto market.
[How many jobs will this cost? - Mish]
``China's car market will continue to grow for years to come,'' said Xu Hao, a spokesman at Shanghai Automotive Industry. ``We don't worry that the government's measures will affect us.''
China's trade deficit widened to $2.26 billion last month from $540 million in March as imports surged to $49.4 billion, helped by a stronger currency. Exports rose 32 percent to $47.1 billion.
The yuan tracked a 6.8 percent gain in the dollar against the euro in the past three months because of the Chinese currency's peg to the U.S. unit. China's increased appetite for imports may help damp U.S. criticism of China's currency link and its trade practices. The U.S. trade deficit with China ballooned to a record $124 billion last year.
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