China's latest data removes rate rise hurdle for Fed

[BEIJING] China's latest round of economic data showed fresh evidence of stabilisation after policy makers unleashed several rounds of monetary and fiscal stimulus.

Bloomberg's monthly China gross domestic product tracker picked up to a 6.85 per cent estimated growth pace for November, the best reading since June, after reports on Saturday on industrial production, retail sales and fixed-asset investment all exceeded forecasts.

Unexpected strength in China's old growth drivers and renewed vigour in new ones helped remove potential hurdles for Federal Reserve Chair Janet Yellen as she and her colleagues meet this week to decide whether to raise US interest rates for the first time since 2006. China has already cut rates to a record low after the slowest growth in a quarter century.

"Stimulus is gaining traction in stabilising growth," Bloomberg Intelligence economists Fielding Chen and Tom Orlik wrote in a report on Saturday. "Resilient numbers from China clear a potential obstacle to Fed liftoff in the week ahead. Stabilising growth reduces the urgency for China's policy makers to add to their own stimulus."

After six rate cuts since late last year failed to spur a faster expansion and exports posted a fifth-straight monthly drop, the People's Bank of China is changing tactics. A unit of the central bank signaled on Friday that it would reduce the yuan's link to the dollar and instead value the yuan by tracking it against a broad range of currencies.

Industrial output climbed 6.2 per cent in November from a year earlier, the National Statistics Bureau said on Saturday, compared with the 5.7 per cent median estimate of economists surveyed by Bloomberg and October's 5.6 per cent. Retail sales gained 11.2 per cent for the best reading of 2015 while fixed-asset investment increased 10.2 per cent in the first 11 months of the year.

The reports followed others last week showing the yearlong slide in imports is moderating and that consumer inflation is picking up. Policy makers have added stimulus to help maintain medium to high-speed growth while shifting to a more balanced, services and consumption-led economy and away from manufacturing and infrastructure spending.

"The risk of a hard landing remains low," Louis Kuijs, head of Asia economics at Oxford Economics Ltd in Hong Kong, wrote in a note. "The macro-policy easing measures taken earlier this year have had a favourable impact on growth."

All three gauges released on Saturday showed more strength than economists had forecast, with industrial output exceeding all but one of 37 economist estimates in the survey. Average daily auto production jumped 16 per cent in November from a year earlier, NBS said. That compared with a 4.9 per cent rise in October and a 11.2 per cent drop in July.

Policy makers have unleashed new rounds of fiscal and monetary stimulus to keep growth on track as it slowed from 7.3 per cent last year, already the slowest full year since 1990, to 7 per cent in the first half and to 6.9 per cent in the third quarter.

President Xi Jinping's goal for GDP expansion of at least 6.5 per cent over the next five years is already at risk even after the rate cuts and other stimulus. Growth will fall below Xi's bottom line next year, according to a third of forecasters surveyed by Bloomberg News, while the median estimate for 2017 is for a 6.3 per cent expansion.

China's broadest measure of new credit rebounded in November, official data showed on Friday, signaling that monetary measures are having an impact. Aggregate financing rose to 1.02 trillion yuan (S$223 billion) in November, according to the PBOC. That compared with the median forecast of 970 billion yuan in a Bloomberg survey.

Fed policy makers will gather in Washington from Dec 15-16 for their last policy meeting of 2015. Officials put off a rate increase in September because of growing risks, mainly from China, to their outlook for economic growth and inflation even as they continued to say they were on track to raise the target later this year, meeting minutes show.

As speculation US rates will rise has boosted the dollar, the PBOC on Wednesday cut the yuan's reference rate to 6.4140 per dollar, its weakest level since 2011. On Friday, the central bank's China Foreign Exchange Trade System unit spurred speculation that policy makers want to reduce the currency's link to the dollar and let it weaken further.

The new yuan index will be composed of 13 currencies to "help bring about a shift in how the public and the market observe RMB exchange rate movements," CFETS said statement released late on Friday.

Loosening the link to the dollar, which has climbed to the highest in more than a decade against major peers, would help support trade for China's export-dependent economy.

The change "could end up being a significant shift in currency policy," Mark Williams, the chief China economist at Capital Economics Ltd in London, wrote in a note. "The timing of this announcement is significant, on the cusp tightening by the Fed, which could feed further dollar strength." BLOOMBERG