By Langi Chiang and Zhou Xin
BEIJING, March 12 (Reuters) - China's industrial output growth ground almost to a standstill at the start of the year, coming in below market expectations, but a continued surge in bank lending in February spurred optimism that business activity could soon rebound.
Retail sales also slowed in the first two months, though only slightly, showing that Chinese consumers, like the broader economy itself, remain in better shape than their counterparts around the world.
China's annual industrial output growth slowed to 3.8 percent in January and February from 5.7 percent in December, the National Bureau of Statistics (NBS) said on Thursday. The median forecast of 25 economists polled by Reuters was for a rise of 6.4 percent.
But production growth in February alone -- when there were five more working days than in February 2008 -- was 11.0 percent.
"Industrial output is recovering fast, as can be seen in the February figures," said Yuan Yuedong, a Bank of China economist in Beijing. "The government's measures are beginning to have an effect."
Annual growth in China's broad M2 measure of money supply rose to 20.5 percent in February from 18.8 percent in January, the central bank said on Thursday.
RETAIL DOWN
New yuan loans in February totalled 1.07 trillion yuan ($157 billion), down from the record of 1.62 trillion yuan in January, but still very high by historical standards. With 10 months to go in 2009, China is already more than halfway towards reaching its goal of at least 5 trillion yuan in new bank lending.
"Given how the Chinese government is keen to extend credit at the start of the year in order to support the stimulus projects later in the year, that's not too big of a surprise," said Sherman Chan, an analyst with Moody's Economy.com in Sydney.
China's state-owned banks have been answering the government's call to provide a huge chunk of the financing for the 4 trillion yuan ($585 billion) stimulus package designed to keep the country on track for 8 percent growth despite a collapse in exports and a slump in the domestic real estate sector.
Annual growth in China's retail sales slowed to 15.2 percent in the first two months from 19.0 percent in December, the NBS said. But since the figures are nominal and do not account for the fall in consumer prices thus far in 2009, consumption has actually been relatively steady in inflation-adjusted terms.
"Consumption is particularly strong despite uncertainties about future income levels. You can see the role being played by the government's policies to boost consumption," said Lin Songli, an economist with Guosen Securities in Beijing. (Reporting by Langi Chiang, Zhou Xin and Jason Subler; Writing by Simon Rabinovitch; Editing by Ken Wills & Jan Dahinten)