China signals recovery after the stimulus plan

Bloomberg

The world’s third-biggest economy may expand 6.6 percent in the second quarter after slowing to 6.3 percent in the three months to March 31, the weakest pace since 1999, according to the median estimates of 14 economists surveyed by Bloomberg News.

China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record $237 billion of new loans in January.

"China looks set to be the first major economy to recover from the global meltdown," said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong. "China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened."

The government’s stimulus plan, announced in November, is beginning to gather momentum. Projects such as the building of 3.5 billion yuan of public houses in Shaanxi province and Shanghai began in December, while Shandong province started work on three new railway lines the same month. China is committing about 1.2 trillion yuan of central government funds to the plan, which means banks’ willingness to fund projects is crucial. So far they are responding.

The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China yesterday.

While China is the only one of the world’s three biggest economies still growing, the expansion has slowed from 13 percent in 2007 and 9 percent last year.

Growth will accelerate from the current pace to 7.2 percent for the full year, according to Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong. Her calculation is that consumption will contribute 4.4 percentage points and investment 4 percentage points.