China Investment Surges 30.5% While Exports Decline

BEIJING, May 18 -- China’s investment in factories and property surged by more than economists forecast in response to the government’s RMB 4 trillion stimulus packages countering a deepening slump in exports.

    The statistics bureau said urban fixed-asset investment climbed 30.5% in the four months to the end of April from a year earlier from 28.6% in the first three months. Overseas shipments declined 22.6% in April from a year earlier.

    New lending is surging, manufacturing expanded last month and a separate report today showed housing sales climbed 35.4% in the first four months. Deteriorating trade highlights China’s dependence on government-led spending to spur a revival in the world’s third-largest economy.

    Mr Isaac Meng a senior economist at BNP Paribas SA in Beijing said “Clearly the economy is rebounding but the improvement is driven by domestic demand and domestic monetary and fiscal policy. It is still way too early to expect a sharp turnaround in global demand.”

    The yuan traded at 6.8230 against the dollar as of 3:28 PM in Beijing, unchanged from yesterday’s close. The Shanghai Composite Index of stocks closed 1.5% higher as the MSCI Asia Pacific Index fell.

    The investment figure released by the statistics bureau was higher than the 29.1%t median estimate of 16 economists surveyed by Bloomberg News. Spending grew at the fastest pace since the first seven months of 2006. The collapse in world trade because of a global recession dragged China’s growth to the weakest pace since at least 1999 in the Q1. The Ministry of Commerce cautioned today that a continued export decline will harm domestic consumption and investment in the long term.

    Mr Paul Krugman Nobel prize-winning economist said “I think it’s difficult to see where a great revival of existing Chinese exports to the US will come from. The US is almost certainly going to be facing bleak consumer spending for an extended period.”

    The drop in overseas shipments was worse than the economists’ forecast for a 15.3% decline. Total trade with the US fell 17.1%. For the European Union the decline was 24.1%.

    (Source: Bloomberg)