China registers a 15.9% industrial growth
China's industrial production growth accelerated in August, fueling speculation the central bank will raise its benchmark interest rate for the first time in nine years.
Production rose 15.9 percent from a year earlier to 455 billion yuan (US$55 billion) after climbing 15.5 percent in July, the Beijing-based National Bureau of Statistics said on its Web site.
"There's a stronger possibility of a new round of tightening, including interest rates," said Joseph Lau, an economist at Credit Suisse First Boston in Hong Kong. He predicts the central bank will raise its key one-year lending rate from 5.31 percent as early as this month.
Central bank Governor Zhou Xiaochuan said this week policy makers will decide whether to raise borrowing costs after reviewing August economic reports. Shanghai Baosteel Group Corp., China's largest steelmaker, predicts the government will raise rates this year to bolster lending and investment restrictions as it attempts to engineer a gradual economic slowdown.
"As Zhou Xiaochuan has indicated in his speeches, China will probably raise interest rates in the near term," Xie Qihua, chairwoman of Shanghai Baosteel, said Thursday in an interview. "In my view, it may increase before the end of the year."
The central bank Thursday rejected reports in media that it's told commercial lenders to prepare for a rate increase in October. A report Tuesday in the Securities Market Weekly quoted an official at a large Chinese bank as saying that the bank has been ordered to raise interest rates in October but was told to keep quiet about it in the interim.
Stock and bonds fell. The Hang Seng China Enterprises Index, which tracks 38 mainland companies that have so-called H shares listed in Hong Kong, dropped 1.2 percent to 4263.14 as of 12:01 p.m. The yield on China's benchmark seven-year government bond maturing in November 2010 rose to 4.87 percent from 4.85 percent Thursday.
"People have priced in an interest-rate hike to some degree," said Renee Hung, who helps manage US$2.2 billion at Value Partners Ltd. in Hong Kong. "We still need more data to make up our mind."
The statistics bureau may report August inflation and retail sales on Monday, and fixed-asset investment figures on Thursday. Money supply figures are likely to be announced next week by the central bank, based on previous release dates.
Inflation, Power Cuts
Chinese Premier Wen Jiabao has ordered banks to rein in lending to industries including steel, cement and autos to damp an investment boom.
Inflation probably accelerated to a seven-year high of 5.4 percent in August, according to a Bloomberg survey, and China's four largest cities and most of its provinces have experienced power cuts this year.
China's investment in factories, roads and other fixed assets rose 32 percent in August, outpacing the 31 percent gain reported for the first seven months of the year, according to Wu Jinglian, a researcher at the cabinet-level State Development Research Center. "The figures indicate that there is a serious structural problem," he said Thursday in Beijing.
Strong Steel Demand
Output of steel products increased 23 percent last month after gaining 19 percent in July, Friday's report showed. Shanghai Baosteel's Xie said demand for such products is strong, reflecting the economy's strong growth.
Vice Finance Minister Li Yong said in an interview last week that China's US$1.4 trillion economy, the world's seventh largest, is expected to expand 7 percent to 8 percent this year after growth reached a seven-year high of 9.1 percent in 2003. In the first half, gross domestic product increased 9.7 percent.
"It's too early for Beijing to claim victory in its battle against investment growth," said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong.
Still, the lending curbs have had some success in slowing the economy. Cement production growth slowed to 9.4 percent in August from 11 percent the previous month and aluminum output rose 9.1 percent after climbing 10.8 percent, today's report showed. Vehicle production increased 3.6 percent to 386,000 units after 5.4 percent growth in July.
"Building projects without proper financing have stopped," Nelson Chang, vice chairman of Chia Hsin Cement Corp., which has two plants in Chinese mainland. The company, Taiwan's third-largest cement maker, said the lending restrictions will hurt its profit.
Even as building projects get blocked, the government is trying to spur investment in industries including transportation, power generation and agriculture, and the nation's banking regulator said last month that commercial banks should step up lending to private businesses, the biggest source of new jobs.
For the first eight months, industrial production increased 17.1 percent to 3.39 trillion yuan, today's report said.