China posts 7.9% growth

Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all indicated that Beijing’s pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.

Year-on-year growth of 7.9 per cent in the fourth quarter beat a consensus forecast of 7.8 per cent in a Reuters poll and snapped a streak of seven consecutive quarters of slowdown.

The performance was at the upper end of the seven-eight per cent rate economists reckon is needed to deliver on reforms essential to China’s long-term development after three decades of red-hot, double-digit growth.

Full year growth of 7.8 per cent was also just ahead of the poll’s 7.7 per cent call and, although the weakest since 1999, comfortably ahead of the government’s 7.5 per cent target, which just months ago seemed to some economists to be in jeopardy.

“It’s kind of like a golden spot —stronger growth, but not strong enough to trigger a lot more inflationary concern. That’s perfect for equity markets.” said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong.

“What everybody wants is growth that’s strong enough to give us peace of mind that revenues will increase and there is no hard landing risk, but not excessive, not strong enough to trigger inflation. And this is what I think we are getting. I’m bullish on China still.”

Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.

Exports generate about a third of economic activity and sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2 per cent contribution, data showed.

With China’s consumers still relatively poor — average annual urban disposable income was just 21,810 yuan ($3,500) in 2011 — it remains too hard for the government to rely on them to help compensate for any shortfall from the export sector.

Investment meanwhile, at 50.4 per cent, has picked up as the new leadership has looked to underpin a recovery with spending on infrastructure — a tried and tested method.

Data released alongside GDP numbers on Friday showed home prices extending a slow rise in December, with an average rise of 0.3 per cent month-on-month in 70 major Chinese cities, the fifth month in the last six to show an increase, despite government efforts to temper prices.

Real estate investment, which accounted for 13.8 per cent of China’s gross domestic product in 2012, rose 16.2 per cent last year from a year earlier and remains a key component of overall fixed asset investment — the cornerstone of Beijing’s recovery strategy.

Other data released alongside GDP showed industrial output grew 10.3 per cent in December from a year ago, versus expectations of 10.1 per cent.

Retail sales in December rose 15.2 per cent on a year ago versus an estimated 14.9 per cent in a Reuters poll.