Bloomberg News

China Leading Indicator Shows Economy Maintaining Momentum

November 17, 2011

(Updates with economist’s comment in fourth paragraph.)

Nov. 17 (Bloomberg) -- A Chinese leading indicator rose, suggesting the world’s second-biggest economy is weathering moderating export growth and a government campaign to curb consumer and property prices.

The index increased 0.4 percent to 160.2 in September, The Conference Board said on its website today, citing a preliminary reading. The gauge is designed to capture prospects over the coming six months. August’s index was revised to a 0.6 percent gain from a previous 0.5 percent increase.

The People’s Bank of China said yesterday growth is slowing as a result of the government’s macroeconomic policies and that the economy’s momentum remains “strong.” The comments indicate the central bank will implement “selective easing” such as cutting lenders’ reserve requirements rather than any “across- the-board” loosening, Credit Suisse AG said in a report today.

The leading index “is still expanding strongly,” confirming China’s “soft-landing story,” Andrew Polk, a Beijing-based economist at The Conference Board, said on Bloomberg Television. The European debt crisis remains the nation’s biggest risk, and “if that takes a drastic turn for the worse, then we’re looking at some pretty serious hit in China’s export market,” he said.

The benchmark Shanghai Composite Index rose 0.1 percent as of 1:17 p.m. local time today. The gauge has lost 12 percent this year amid government’s policy tightening and worsening global outlook.

Index Components

The leading index’s six components are loans by financial institutions, raw-material supplies, deliveries and new export orders information from the manufacturing purchasing managers’ index, consumer expectations, and total floor space started. The central bank publishes the first two components and the statistics bureau releases the other four.

The leading index, first published in May 2010, has successfully signaled turning points in China’s economic cycle if plotted back to 1986, the organization says.

The central bank yesterday said it can’t loosen control over prices and reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation for price stability is not yet solid,” the bank said in its third-quarter monetary policy report.

China posted the lowest inflation in five months in October after a year-long campaign to tame prices that included higher interest rates, lending curbs and restrictions on home purchases. Economic growth slowed to 9.1 percent last quarter, the least since 2009, government data show.

The government won’t adopt any “drastic” easing through the end of this year apart from aiding smaller companies and banks and loosening credit restrictions, according to Polk.

China’s growth may slow to around 8.5 percent this quarter with full-year growth at “just over 9 percent,” he said. Other risks facing the economy include a cooling real-estate market and a local government debt problem that could cause further credit crunch, he added.

--Li Yanping. Editors: Lily Nonomiya, Ken McCallum

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net


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