China data show uneven economic recovery, policy dilemma

Sat Mar 9, 2013 5:02am EST
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By Aileen Wang and Nick Edwards

BEIJING (Reuters) - China's uneven economic recovery signals a looming dilemma for policymakers as official data released at the weekend showed inflation at a 10-month high in February while factory output and consumer spending were weaker than forecast.

Data from China's National Bureau of Statistics showed the consumer price index rose 3.2 percent in February from a year ago, versus expectations of a 3.0 percent rise, while annual industrial production (IP) growth in January and February combined at 9.9 percent was the lowest since October 2012 - the starting point of China's nascent economic recovery.

The NBS numbers revealed state-mandated fixed asset investment (FAI) was the key driver of economic growth in the first two months of the year, up 21.2 percent and the strongest in 12 months, while annual retail sales growth of 12.3 percent was the slackest January and February combined since 2004.

"This data shows that the economy is in the process of a mild recovery and that it is still fragile," Xu Gao, chief macro-economic analyst at Everbright Securities in Beijing, told Reuters. "It faces a lot of uncertainties."

The key uncertainty is how much the data has been distorted by the fall of China's annual Lunar New Year holidays, which were in February this year and in January in 2012 and which typically see factories shut up shop for two weeks.

The risk is that the economy needs monetary policy tightened to cool prices before industrial activity and retail sales regain momentum lost last year as the Chinese economy delivered its slowest full year of growth since 1999, at 7.8 percent.


"January-February data have painted quite a mixed picture," said Ren Xianfang, senior economist at consultancy IHS Global Insight in Beijing.   Continued...

Customers shop at a supermarket in Shanghai March 8, 2013. China's annual consumer inflation quickened to 3.2 percent in February from January's 2.0 percent, data showed on Saturday in a further sign that China's burgeoning recovery could be stoking price pressures. Picture taken March 8, 2013. REUTERS/Aly Song