China economy remains resilient as external demand weakens: ABN Amro

SHANGHAI (AFX-ASIA) - China's April figures for industrial value-added output and industrial exports show that the country's economy has remained surprisingly resilient as external demand has weakened, ABN Amro Securities 

economist Eddie Wong said.

	    Wong said state investment in infrastructure projects, foreign investment in export-oriented ventures and steady domestic demand have supported China's 

output growth and cushioned the decline in export growth.

	    However, the economy still faces downside risks, particularly if the domestic stock market undergoes a correction, he said.

	    China's industrial value-added output in April rose 11.5 pct from a year earlier to 226.6 bln yuan, while industrial value-added output in the four 

months to April rose 11.3 pct from a year earlier to 813.4 bln yuan, according to figures released by the National Bureau of Statistics today.

	    Industrial companies' exports during the month amounted to 126.4 bln yuan, up 10.9 pct from a year earlier, an annualised growth rate 3.1 percentage points slower than the rate for the first quarter and 5 percentage 

points slower than the rate for March.

	    Value-added output from state enterprises rose 10.7 pct year-on-year, a growth rate 1.2 percentage points faster than the rate in March, while output 

from joint-ventures rose 14.3 pct, a growth rate 3 percentage points slower than in March.

	    Wong said the increased output from state enterprises was largely the result of the government's program of investing in infrastructure projects, 

noting that the government is launching several new projects for the Tenth Five-year Plan, which began this year.

	    Although China's industrial exports did slow in April, the country's exports have been "surprisingly resilient", particularly when compared to those of South Korea and Taiwan, he said, noting that Taiwan's exports in 

April dropped 11.3 pct from a year earlier.

	    He said the relative strength of China's exports was partly due to increases on the supply side, as new foreign-invested enterprises, particularly in Shanghai and Shandong province, begin large-scale operations.

	    In the first quarter, exports from foreign-invested enterprises for the first time exceeded 50 pct of the country's total exports.

	    Meanwhile, Chinese exporters of home appliances remain competitive at the low end of their respective overseas markets, he said.

	    He said the gradual slowdown in China's exports has had some impact on the domestic economy, noting that every 10 percentage-point drop in China's exports automatically knocks one percentage point from GDP growth, but added that China is one of the least trade-dependent economies in the region.

	    Domestic consumption remains strong, and the government has raised civil servants' salaries, which should also support private spending.

	    At the same time, Chinese companies raised a total of 40 bln usd via stock markets last year and this money is now being spent.

	    Wong said he is expecting GDP growth of 7.5 pct in the full year, and export growth of 8 pct, but cautioned that it is still important to watch for 

downside risks.

	    These risks will emerge if the domestic stock market encounters problems, if other fund raising channels close, and if corporate profits start to fall and companies find themselves short of funds, he said.

	    On the subject of China's money supply figures for April, Wong said the People's Bank of China appears to have been "mopping up" money in recent 

months, maybe because money supply growth has been above the central bank's own targets.

	    According to PBoC figures released today, China's M2 money supply at end-April rose 12.8 pct from a year earlier, while M1 rose 15 pct and M0 rose 6.9 pct.

	    At end-March, M2 rose 13.2 pct year-on-year, M1 rose 17.4 pct and M0 rose 8.5 pct.

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