Chinese investment surged by more than expected in May on the back of government pump-priming and a recovery in the property sector, helping to offset persistent weakness in demand for its exports.
The strong investment figures provided fresh evidence that the world's third-largest economy is leading others on the path to recovery with its fiscal firepower, while the greater-than-expected fall in exports underlines its continuing vulnerability to events outside its control.
Investment accounts for a much greater portion of economic growth than net exports, meaning strength there is likely to help offset weakness in external demand.
Investment in urban areas in fixed assets such as apartment buildings and roads rose 32.9 per cent in the first five months from a year earlier, compared with 30.5 per cent in the first four months, the National Bureau of Statistics said today.
Economists said that translated into a 40 per cent leap in May alone. Adjusted for inflation, the increase was even greater because Chinese prices have been falling for several months.
“I think this is a welcome sign of momentum building in the Chinese economy, and it's good for the global outlook,” said David Cohen with Action Economics in Singapore.
Underpinned by optimism over the Chinese economy, commodity-related stocks in Asia rose for a third straight day today while oil prices extended gains to seven-month highs.
The median forecast of economists polled by Reuters was for a rise of 31 per cent, but the figure of 32.9 per cent had been whispered in China's financial markets earlier this week.
Given that rumours yesterday's inflation figures also proved to be spot on, the accuracy of the leak lends credence to talk in the market - reported by two newspapers - that data on Friday will show industrial production rose 8.9 per cent in the year to May. That would be the sharpest rise since September.
Economists attributed the strength in investment to the government's 4 trillion yuan ($585 billion) economic stimulus plan, announced in November, and an associated record surge in credit growth from the state-dominated banking system.
Markets focused more on those signs of improvement than on the weak trade figures, which showed that exports fell 26.4 per cent from May 2008, while imports fell 25.2 per cent - the seventh month in a row that they have both fallen, and both at an accelerated pace from April.
Reuters