China Gains Confidence in Recovery - WSJ.com
OCTOBER 22, 2009.China Gains Confidence in Recovery
BEIJING -- China's recovery is becoming broader and potentially more sustainable, a shift that could provide better support for a still-fragile global economy. Reinforcing those signs is a change of tone from China's cautious government, which is now becoming more confident in a solid rebound.
Economic data for the third quarter released Thursday showed gross domestic product grew by 8.9% from a year earlier. Just as important is evidence that improvements in the economy are achieving a momentum that is no longer totally dependent on the government's massive stimulus program. The key shift in the latest quarter: a turnaround in the financial health of Chinese companies.
"Orders are piling up on our end. Now my headache is how to get our production to catch up," said Su Qisen, vice president of Xiangxing Bag & Luggage Group, located in southeastern Fujian province. Export orders started to rebound around June, he said, but Chinese consumers are also proving more willing to spend on the company's purses, suitcases and backpacks
Mr. Su plans to hire 4,000 to 5,000 more employees in the next few months to work on 10 new assembly lines, up from around 10,000 workers now. To attract workers in an increasingly competitive labor market, Mr. Su said he is also planning to raise wages by 10% to 15%.
That kind of corporate spending on new hires and equipment, if sustained, could help wean China's growth off its reliance on easy bank lending and government stimulus projects.
Chinese officials have been aware of the risks and in recent months regularly warned that the nation's rebound is still fragile. But they now seem prepared to call a firm recovery. "Economic growth has accelerated quarter by quarter...and the improving trend in the recovery has been consolidated," China's State Council said Wednesday.
As the fastest-growing major economy, China has a key role to play in pulling the world out of the deep slump it fell into last year. But its rebound this year has been so quick, and driven by such a huge flood of money from the state-controlled banking system, that many investors have questioned whether the expansion can continue for much longer. The government's strategy has raised widespread worries that loose money could inflate prices of stocks and housing, build up unneeded factories and saddle the economy with bad debts.
One reason for some optimism now is that the profits of Chinese companies have started growing again for the first time since the onset of the crisis. The statistics bureau's survey of large industrial companies shows profits for the three months ended August were up 6.5% from a year earlier, reversing sharp falls since late 2008. And the profits of state-owned enterprises jumped 12% in September from a year earlier, the first increase in 13 months.
"Corporate savings finance a huge proportion of investment in China, so a pickup in profits should feed through into strength in investment," said Mark Williams, an economist with Capital Economics in London. If companies are more profitable, investment spending won't be as tied to continued easy-money policies from the government.
Higher profits could just be the result of cost-cutting, as has been happening in the U.S., so it is significant that the improving bottom line of Chinese companies is being matched by gains in the top line: Overall revenues are also picking up.
The government surveys of companies show revenues rising by just over 5% in the past few months, reversing steady declines since the end of 2008.
Foreign companies with operations in China are also seeing a boost. A.O. Smith Corp. of Milwaukee reported its water-heater sales in China grew 35% in the third quarter, even as its total sales shrank 10%. Coca-Cola Co. said this week that sales volume in the third quarter was up 15% in China, but down 4% in North America.
Intel Corp.'s Chief Executive Paul Otellini this week credited China with helping to bring the company through the downturn. "Thank God for China. They buoyed, certainly our company, through the depths of this thing," Mr. Otellini said in an interview.
The improvement has come even as the Chinese government has quietly dialed back the boost it is delivering to the economy. New bank lending in the third quarter was less than half the second-quarter total, and growth in government spending has also slowed. That could help ease worries among policy makers and investors that the stimulus risked fueling new bubbles and adding to overcapacity in industries such as steel and cement.
World trade has also started growing again in the past few months, helping to solidify China's recovery. Export orders help keep factories running and workers employed in the nation's massive manufacturing sector.
The recovery in the property sector has been key to China's turnaround. Construction starts surged 26% from a year earlier in the third quarter after shrinking 5.7% in the second quarter
WSJ must have been bought by China, otherwise they won't spread commies' properganda, and cooking article with cooked data from China
