Chinese Data Hints At Economic Shift

China reported late Thursday that the economy expanded at a faster rate than expected in the fourth quarter, positive signs for both the domestic and world economy. The National Bureau of Statistics in China reported that the economy grew at an annualized rate of 7.9% in the fourth quarter, better than the 7.8% estimated by economists and much faster than the 7.4% rate seen in the third quarter.

Key Proxy
Also, the National Bureau of Statistics reported key data in industrial production, retail sales and fixed asset investment. First, China reported that industrial production -- a key proxy and leading indicator for growth -- rose at an annualized rate of 10.3% in December, faster than the expected rate of 10.1% and higher than the previous reading of 10.1%. Strong industrial-production data is positive news for China's short-term outlook.

Retail sales were also strong in December, rising 15.2% in December on an annualized basis. Economists had expected retail sales to rise 14.9%, the same rate seen in November. The strong retail-sales data reinforces the argument that the Chinese economic authorities are somewhat successfully engineering a shift from an export-driven economy to a domestic consumption-driven one.

Lastly, fixed-asset investment, a key proxy for corporate investment in long-term assets and fundamental driver of long-term growth, rose 20.6% in 2012, slightly missing estimates of a 20.7% rise, the rate seen in November. Although the data missed expectations slightly, the 20.6% rise in investment is still a strong reading and bodes well for China's future.

Economists at Credit Suisse took positives from the data, but warned that some of the strength in the GDP figures was driven by infrastructure investments by the government. Also, they fear that a recent uptick in inflation could hinder any stimulus hopes on the monetary side, which could cap gains in growth. However, they maintain their 2013 8% growth forecast for China.

Strong Market Gains
The Shanghai Composite Index gained 1.41% overnight on the data, marking the biggest weekly gain for the index of 2013. Since hitting a four-year low on December 3, the Shanghai Composite Index has broken out some 18%, and the less followed CSI 300 Index has added 23%, formally in bull market territory. Gains in stocks have been led by economically sensitive sectors such as automobiles and real estate, positive signs for the health of this market.

BY Matthew Kanterman