Published: Tuesday, 10 Nov 2009 | 11:03 PM ET

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Chinese factory output growth leapt to a 19-month high in October, showing the world's third-largest economy has firmly put the worst of the global financial crisis behind it.

AP

Other figures released on Wednesday showed a dip in the pace of investment and loan growth as the impact of the initial burst from a bank-financed 4 trillion yuan ($585 billion) economic stimulus package, announced a year ago, tapered off.

But economists said the sheer volume of investment projects still in the government's pipeline, a sharp rebound in real estate spending and the huge volume of loans issued this year virtually guarantee stronger GDP growth in the coming year.

"The recovery momentum we've seen in the past few months continues. Domestic demand as a whole is improving in a sustainable manner," said Chris Leung, China economist at DBS Bank in Hong Kong.

"China anchors stability in Asia and expectations of economic stability in the region."

The data helped lift Asian share markets, with the MSCI index of Asia Pacific stocks outside Japan rising 0.4 percent, with the materials and consumer staples sectors outperforming.

Industrial production rose 16.1 percent in the year to October, the fastest ace since March 2008 before the global downturn felled China's export-orientated factories.

The figure, up from September's reading of 13.9 percent, easily beat market forecasts of 15.5 percent growth.

"Industrial output is higher than the market expected, and it shows the economy is recovering more quickly," said Gao Shanwen, chief economist at Essence Securities in Beijing.

"There will be no immediate policy shift, but a tightening policy is the big trend as the economy is growing so fast."

Rebalancing at the Edges

Retail sales, a proxy for overall consumption, were also stronger than expected last month -- music to the ears of policymakers at home and abroad who want China to spend more and to invest and export less.

Sales growth accelerated to 16.2 percent in the 12 months to October from 15.5 percent in September, handily outstripping market projections of a 15.8 percent rise.

By contrast, year-to-date investment in fixed assets such as roads and factories in urban areas eased slightly to 33.1 percent from 33.3 percent in the first nine months. Economists had forecast 33.5 percent.

"Looking at trends, consumption is accelerating, while investment is decelerating. The change is pretty modest but it is an interesting trend to see and is positive in the sense of really being what the government wants," said Jun Ma, chief China economist at Deutsche Bank in Hong Kong.

Deflation eased in October, but not by as much as economists had expected. Consumer prices fell 0.5 percent in the year to October, with producer prices down 5.8 percent.

With inflation under control, Dong Xianan, chief macroeconomist with Industrial Securities in Shanghai, said the central bank was unlikely to raise interest rates before next April.

However, the authorities have already started to lean on banks to curb credit growth.

Lending is typically soft in the fourth quarter, but a slowdown in new loans to 253 billion yuan in October from 516.7 billion in September may have reflected the regulators' pressure, said Zhou Xi, an economist with Bohai Securities in Tianjin.

"I don't think it represents any trend, and China's bank loans in 2010 will remain above 7 trillion yuan from an expected 9.5 trillion yuan in 2009 -- a slowdown, but a modest one," Zhou said.

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