BEIJING Chinese factory output growth surged to a 19-month high in October, showing the world's third-largest economy has firmly put the worst of the global financial crisis behind it.
Other figures released on Wednesday showed a dip in the pace of investment and loan growth as the impact of the initial burst from a bank-financed 4 trillion yuan ($585 billion) economic stimulus package, announced a year ago, tapered off.
Exports and imports also undershot market forecasts, falling from year-earlier levels for the 12th month in a row.
But economists said China was maintaining the momentum of its recent recovery, which has made it a certainty that Beijing will surpass its target of 8 percent growth for 2009 as a whole.
What's more, the large number of investment projects still in the government's pipeline, a sharp rebound in real estate spending and the huge volume of loans issued this year virtually guarantee stronger GDP growth in the coming year.
"Domestic demand as a whole is improving in a sustainable manner," said Chris Leung, China economist at DBS Bank in Hong Kong. "China anchors stability in Asia and expectations of economic stability in the region."
The data helped lift Asian share markets, with the MSCI index of Asia Pacific stocks outside Japan rising 0.6 percent. The materials and consumer staples sectors outperformed.
With the economy now on a more solid footing, markets are focusing on when China might start unwinding its stimulus.
Policymakers have already asked banks to lend less freely, but the consensus among economists is that interest rates will not rise until well into 2010.
"There will be no immediate policy shift, but a tightening policy is the big trend as the economy is growing so fast," said Gao Shanwen, chief economist at Essence Securities in Beijing.
Industrial output rose 16.1 percent in the year to October, the fastest pace since March 2008 before the global downturn brought China's export-orientated factories to their knees.
The figure, up from September's reading of 13.9 percent, easily beat market forecasts of 15.5 percent growth.
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Factory output is a crucial gauge because industry generates about 43 percent of Chinese gross domestic product, a larger share than services. A battery of energy and commodity data for October confirmed the strength of the sector:
-- Power generation in the year to October increased 17.1 percent, the fastest growth in 19 months.
-- Crude steel output was equivalent to an annualized 609 million tonnes, 22 percent higher than 2008.
-- Output of refined copper and primary aluminum hit a record for the second straight month.
-- The volume of refined crude oil rose 10.4 percent from a year earlier to a fresh high.
UNDERWHELMING EXPORTS AND IMPORTS
Trade, by contrast, was weaker than economists had expected.
Exports in October were down 13.8 percent from a year earlier, an improvement on September's 15.2 percent fall but short of the median market forecast of a 13.2 percent drop.
And imports were down 6.4 percent from October 2008, compared with forecasts of a 1.0 percent fall and a 3.5 percent year-on-year decline in September.
As a result, the October trade surplus ballooned to $24 billion, a reminder ahead of U.S. President Barack Obama's visit to China next week of the imbalances plaguing the global economy.
Because global trade fell off a cliff last November after the shock to confidence delivered by the bankruptcy of investment bank Lehman Brothers, economists still think exports will resume positive year-on-year growth by December at the latest.
"This will make it more difficult for Beijing to resist international pressure to let the yuan appreciate and also make it easier for policymakers to justify a stronger currency to domestic audiences," said Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong.
A stronger currency would help to rebalance the Chinese economy by steering resources away from exports and related investments and toward domestic, consumption-related sectors.
To that end, policymakers will take comfort from a surprising acceleration in retail sales growth to 16.2 percent in the 12 months to October from 15.5 percent in September, handily outstripping market projections of a 15.8 percent rise.
By contrast, year-to-date urban investment in fixed assets such as factories and property eased to 33.1 percent from 33.3 percent in the first nine months. Economists had forecast 33.5 percent.
"Looking at trends, consumption is accelerating, while investment is decelerating. The change is pretty modest but it is an interesting trend to see and is positive in the sense of really being what the government wants," said Jun Ma, chief China economist at Deutsche Bank in Hong Kong.
Deflation eased in October, but not by as much as expected. Consumer prices fell 0.5 percent in the year to October, with producer prices down 5.8 percent.
A sharp drop in new lending, to 253 billion yuan in October from 516.7 billion yuan in September, was partly a seasonal phenomenon but may have reflected regulatory pressure to curb loan growth, said Zhou Xi, an economist with Bohai Securities in Tianjin.
"I don't think it represents any trend, and China's bank loans in 2010 will remain above 7 trillion yuan from an expected 9.5 trillion yuan in 2009 -- a slowdown, but a modest one," Zhou said.
(Reporting by Aileen Wang, Jason Subler, Langi Chiang, Zhou Xin and Susan Fenton; Writing by Alan Wheatley; Editing by Ken Wills and Alex Richardson)