23 APRIL 2010

Chinese Growth Lifts to 3-year High

China’s economy grew at the fastest pace in almost three years, expanding at an 11.9% annual rate in the March quarter. At face value it appears that growth is unsustainable but activity is increasing from a low base.

While economic growth was slightly higher than expectations, readings on inflation came in below expectations. Consumer prices were up 2.4 % on a year ago with producer prices up 5.9 %.

China’s retail sales were up 18 % on a year earlier in March with investment up 26.4 % on a year ago and industrial production up 18.1 %.

What does this data all mean?

The latest economic data in China ticks all the right boxes. While economic growth has accelerated, it’s up from a low base. But at the same time, inflation has eased and estimates of retail spending and production met market expectations.

It is very much in Australia’s interests that China grows at a solid, but sustainable pace. And both elements are important. No one wants a boom/bust situation. A solid pace of growth clearly benefits a raft of Australian companies, particular in mining, construction, transport and engineering sectors.

China is not just Australia’s largest trading partner but it also recently became our top export destination, toppling Japan for the first time since 1967.   Although this is the case it’s important to remember that China is still in the early days of its industrialisation. For at least the next five years, retail spending, production and investment will grow at double-digit rates, dragging in resources from places like Australia. Australia will ride on the coat tails of China as this industrialisation evolves.

We continue to see Australia very well positioned on the world economy because of its exposure to China.

Denise Slattery
Financial Planner
Authorised Representative No. 304356

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