Chinese industrial output, investment and credit growth accelerated in August, suggesting the economic recovery is on a solid course, but Beijing is unlikely to hit the policy brakes too hard to avoid derailing it.
Asian shares edged up as the data supported regional recovery hopes, while the Australian dollar cut losses against the dollar and yen. Oil prices rose half a percent to above $72 a barrel.
The only weak spot in August's data was trade. Exports fell 23.4 percent from a year earlier, a sharper drop than expected and accelerating from July's 23 percent fall as global demand remained frail.
"Clearly, it shows that the domestic economy is doing much better because of the (government) stimulus, and external demand is still quite weak," said Tao Wang, economist with UBS in Beijing.
"I don't think weakness in exports is going to derail the fact that the general economy will continue to recover."
Industrial output grew at a 12-month high of 12.3 percent in August from a year earlier, jumping from 10.8 percent in July and beating expectations of a 12.0 percent rise, data issued by the National Bureau of Statistics showed on Friday.
Investment growth also picked up a touch, and banks extended more new loans in August than in July, supporting shares of Chinese banks.
Despite the signs of strength, analysts expect policymakers to proceed cautiously to avoid pulling on the reins of monetary and fiscal policy too quickly, after a steady flow of assurances from Beijing that it would not exit from stimulus too soon.
Premier Wen Jiabao drove that point home on Thursday, saying the government would unswervingly apply its policy mix of massive government spending and loose money because the economic recovery remains fragile.
BROAD STRENGTH
"The data shows that the Chinese economy continues to strengthen overall," said Rob Subbaraman, chief Asia economist with Nomura in Hong Kong.
"There's a pretty good configuration of data: on the activity side there is further strengthening and on the inflation side there is still negative inflation, so I don't think there's a real urgency to tighten policy aggressively."
Driven by a 0.5 percent annual rise in food prices in August, overall consumer prices fell just 1.2 percent from a year earlier, versus a decline of 1.8 percent in July.
The consumer price index rose 0.5 percent from July, marking the first month-on-month rise in six months. Producer prices fell 7.9 percent in August, compared with 8.2 percent in July.
More detailed figures also suggested that private investment could be starting to take on more of a role in driving growth, even though government investment remains dominant.
Real estate investment rose 14.7 percent in the first eight months from a year earlier, compared with 1 percent in the first two months, boding well for private capital spending.
Overall urban fixed-asset investment growth reached 33.0 percent for the first eight months, up from 32.9 percent in January to July and beating forecasts of 32.5 percent. Li Xiaochao, spokesman for the statistics agency, told reporters the August figures had laid a solid foundation for China to achieve its 8 percent growth target for this year.
"We can see from the figures that the recovery trend in the national economy is getting more apparent this year," Li said.
BETTER COMPOSITION OF LENDING
Annual growth in the broad M2 measure of money supply picked up to a record-high 28.5 percent, from 28.4 percent in July.
Lending data showed what should be a reassuring trend for policymakers: that credit is being channeled more into mid- and long-term loans as opposed to short-term bill financing, meaning more of that cash is likely being put into actual investments.
Bill financing actually fell 276.4 billion yuan in the month, while mid- and long-term loans increased by 548.1 billion yuan.
Altogether, new local-currency loans reached 410.4 billion yuan — far from the average of about 1.2 trillion in the first six months, but up from July's 355.9 billion yuan.
Much of the record surge in lending in the first few months of the year was on account of short-term bill financing, part of which went into property and stock speculation, creating worries about dangerous bubbles.
Concerns about a drop-off in credit contributed to a sharp stock market slide in August, when Shanghai shares fell over 20 percent, but they have since showed some signs of stabilising.
The Shanghai index, which had been up 0.4 percent before the data, extended the day's gains to 1.2 percent by early afternoon.
Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, pointed to concerns about inflation, telling reporters that authorities would be on guard against it in coming months.
Despite the potential for inflationary pressures to return, the overall outlook was stable, said Zhu Jianfang, chief macroeconomist at CITIC Securities in Beijing.
"There is no possibility they will raise interest rates in the fourth quarter. At least, we'll have to wait until the second quarter next year."
