China Factory Slowdown May Spur Stimulus

China may report tomorrow the slowest inflation in 19 months and industrial-production growth near a two-year low, increasing odds the government will step up efforts to stimulate the economy. Consumer prices probably rose 3.4 percent in February from a year before, after a 4.5 percent increase in January, while output growth eased to 12.5 percent, Bloomberg News surveys of economists indicate. Commerce Minister Chen Deming yesterday signaled that export gains were less than analysts forecast.Premier Wen Jiabao’s government this week highlighted plans from endorsing higher minimum wages to boosting public housing that reduce risks of the slowdown turning into a so-called hard landing. Concern over the magnitude of China’s moderation contributed to Asian stocks surrendering recent gains this week, with a benchmark gauge poised to snap an 11-week winning streak. “Growth will slide further if the government doesn’t increase fiscal investment,” said Joy Yang, a Hong Kong-based economist at Mirae Asset Securities (HK) Ltd. who previously worked at the International Monetary Fund. The data “will boost the case for Wen to step up policy measures to bolster growth,” she said. The benchmark MSCI Asia Pacific Index snapped the biggest three-day fall since December, rising 0.6 percent today at 11:02 a.m. in Tokyo. China’s benchmark Shanghai Composite Index gained 0.6 percent at 10:03 a.m. local time after dropping 2.7 percent in three days. The yuan weakened a fourth day against the dollar to 6.3153. Options Measure The cost to protect against losses in China’s biggest companies is the highest compared with the U.S. since 2008. Options on the 40-member Hang Seng China Enterprises Index, which includes PetroChina Co. and China Construction Bank Corp., show investors are increasingly bearish on the gauge of Hong Kong-traded China shares after it surged as much as 46 percent since October. The March 9 releases of industrial output, retail sales and fixed-asset investment will be the first this year. The government hasn’t given data for January in part because the weeklong Chinese New Year holiday distorts data in the first two months. Retail sales probably cooled to a 17.4 percent gain in February from 18.1 percent in December, economists’ estimates show. Fixed-asset investment excluding rural households may have increased 20.5 percent in January and February combined, compared with a 24.9 percent gain in the first two months of 2011. Wen, 69, opening the nation’s annual legislative meeting on March 5, announced an economic-growth target of 7.5 percent for 2012, after setting an 8 percent goal the previous seven years. He signaled leaders want to cut reliance on exports and capital spending in favor of consumption. Export Forecasts Outbound shipments gained about 7 percent over January and Feburary combined, Chen said during a press briefing yesterday. Nomura Holdings Inc. said the comment indicated exports grew only 18.7 percent, less than any of the 29 estimates in the Bloomberg News survey before Chen spoke, and Societe Generale SA revised its forecast to 18 percent from 30 percent. The government report is due March 10. Europe’s economy shrank 0.3 percent in the fourth quarter from the prior three months. Exports to the region fell about 2 percent to 3 percent in the January-February period, Chen said. “Arduous efforts” will be needed to meet a goal of increasing China’s trade by 10 percent this year, Chen said. The target is half of 2011’s expansion. Before Chen’s comments, economists had forecast China to report a $5 billion trade deficit for February, the first monthly shortfall in a year and only the third since 2005. Societe Generale changed its estimate to a $30 billion deficit from $5.3 billion. Estimates ranged from a $33.6 billion deficit to a $21.6 billion surplus. Property ‘Drag’ “February data will be mixed, with downside risks due to the holiday distortion and the drag of property curbs,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. Zhu said the first quarter may mark a trough for growth in 2012 as the government eases policy and the global economy improves, helping “drive a strong recovery” in the second half. Chen also said the situation for trade may improve in the second half. The People’s Bank of China in February lowered banks’ reserve requirements for the second time in three months to boost lending and sustain growth. Inflation in February may have slowed to below the government’s annual target for the first time since June 2010, partly on easing food costs and the fact that last year’s Chinese New Year holiday in February boosted spending and prices. The festival fell in January this year, helping drive a higher- than-forecast consumer price gain of 4.5 percent. Inflation Goal Wen this year set the inflation goal at 4 percent, the same rate as in 2011, and up from 3 percent in 2010. Producer-price inflation may have slowed to 0.1 percent last month from a year earlier, the lowest since November 2009, from 0.7 percent in January, according to the median of 32 economist estimates. “Inflation will be a relatively small issue this year,” Li Daokui, an academic adviser to China’s central bank, told reporters March 6. He forecast annual consumer-price gains of “around 3 percent.” Banks in China may have extended 750 billion yuan ($119 billion) of new local-currency loans last month, economists estimated after lending grew a less-than-forecast 738 billion yuan in January, the smallest expansion in five years for that month. M2, the broadest measure of money supply, may have increased 12.9 percent in February, compared with 12.4 percent in January. Spending on property and infrastructure may have remained “sluggish” and cold weather in the first two months of the year may have hindered public-housing construction, Morgan Stanley economists led by Helen Qiao said in a March 2 report. That may weigh on growth prospects for developers and steelmakers. Zhu Jimin, head of the China Iron and Steel Association and also the chairman of Shougang Corp., a Beijing- based steelmaker, this week said nationwide steel output growth may fall by half this year.