China industrial output rebounds after stimulus

China's industrial production surprised today with its best showing since June, the latest indication that government stimulus measures may be driving a mild recovery in the world's second largest economy.
Output at factories, workshops and mines increased 6.2 percent last month from a year ago, the National Bureau of Statistics (NBS) said, the first increase since August and a significant jump from October's figure of 5.6 per cent.
The figures, which came on robust production of automobiles, synthetic fibres and non-ferrous metals, were higher than the 5.7 per cent increase forecasted by economists in a survey by Bloomberg News.
Accompanied by higher than expected numbers for retail sales, the figures cap off a good week for economic data from China, a leading engine of global expansion whose slowing growth has raised concerns in world markets.

Authorities are trying to transform the country's growth model to a slower but more sustainable one driven by consumption rather than infrastructure investment, but the transition to the "new normal" is proving bumpy.
Overcapacity in manufacturing, a slowdown in the country's property market and mounting local government debt are among the factors that have weighed on growth.

But the country is working towards "a phasing out of the old economy and a phasing in of the new economy," Larry Hu, head of China economics at Macquarie Securities Ltd. In Hong Kong, told Bloomberg News ahead of the announcement.
Today's data was suggestive of what such a transition might look like.

Retail sales rose 11.2 per cent in November to their highest level this year, the data showed, after last month's "Single's Day" generated more than USD 14 billion in sales.
The November 11 national online shopping festival has evolved into the globe's biggest since e-commerce giant Alibaba began using the date in 2009 to promote sales through its platforms.
The more than USD 14 billion worth of merchandise volume this year smashed through last year's tally of USD 9.3 billion, according to figures provided by the company.
Online sales increased by 34.5 per cent during the period from January to November, the data from the NBS showed.

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Weighed on by weak global demand, exports slumped more than 20 per cent in February, the sharpest drop since May 2009, while imports dropped 8 per cent.
Zhou attributed the lacklustre data to plunging global commodity prices, especially crude oil, and said China actually imported more goods last year.
"The imports of crude, copper, grain and soybean rose and only those of coal and aluminum saw drop," he said.
In the event of global and domestic financial turbulence, however, Zhou said that China's monetary policy will be flexible.
He said Chinese currency renminbi, or the yuan, has started to return to its normal and reasonable level after volatility and the trend will continue.

"There is no need at all to rush to buy US dollars," he added.
The yuan has been heading south since the government revamped the foreign exchange mechanism last year, and concerns about capital outflows have been on the rise, he said.
The Chinese authorities have repeated that there is no basis for continued weakness of the yuan and China will not seek to boost exports through competitive devaluation.
Zhou attributed the previous depreciation to concerns on a slowing Chinese economy and market jitters caused by easing policies from Europe and Japan.
"Despite market fluctuations, investors will gradually become rational and make decisions based on China's economic potential and balance of foreign exchange," Zhou said.

He also played down concerns over the transfer risks in non-performing assets to other market players through the market of asset-backed securitisation (ABS).
Responding to queries about the bank's ABS practice which might transfer risks in non-performing assets to other market players, Zhou said ABS is quite small in China and risks can be prevented through better oversight and transparency.
He defended it saying that it is a "market practice" and buyers are able to assess the risks.
Zhou sought to explain that the assets bundled in ABS packages are usually priced lower than their original value and the buyers can take into consideration the changes of their value in the future before striking a deal.

China's ABS started "relatively late" and the mortgage- backed securitisation would be among the country's first step in tryouts, Zhou said.
Standardised operation and proper oversight are needed for the healthy development of ABS in China and the country is drawing lessons from the ABS process in the international financial crisis to forestall risks, he said.
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Pan said that the design of ABS products should be "simple, transparent and not multi-layered," and such products should be sold to institutional investors not individuals.
He also allayed concerns over the recent capital outflows, saying that they are within expectation and not strange.

"It should be noted that we had considerable capital inflows in the past years...Rising outflows in some period are not strange at all," Zhou said.
He said China's financial market is back on track after fluctuations, citing the prospect of a growth rate of 6.5 to 7 per cent this year.
"I dare not say whether China will experience some emergencies, but currently our capital flows are expected to quickly become calm and normal," Zhou said.
Yi Gang, vice governor of PBOC, cited that in 2013 most of the capital flows were normal trade surplus on the current account and also included some foreign direct investment.

In general, fluctuations of inflows and outflows are normal and within expectations, Yi said.
Most of the recent capital outflows went to enterprises, financial institutions and residential accounts.
For instance, US dollars deposit on residential and enterprises accounts in China increased by tens of billions in 2015, he said.
On reform of China's financial regulation system which is struggling under the weight of the economic slowdown, Zhou said that discussions were underway on it.
"I am listening to inputs from all sides," Zhou said.
Significant fluctuations in China's stock market last year led many to reflect on the country's financial oversight. There is no global consensus regarding the system for financial oversight, he said.