China Industrial Output Grows at Slowest Pace of 2007 (Update1)

Dec. 13 -- China's industrial production grew at the slowest pace this year, suggesting weaker export growth and government curbs on lending are starting to cool the world's fastest-growing major economy.

Output rose 17.3 percent in November from a year earlier, the statistics bureau said today, after gaining 17.9 percent in October. That was less than the 18 percent median estimate of 21 economists surveyed by Bloomberg News.

Weaker global growth may further curb overseas shipments after the government this year reduced tax incentives for exporters. China has cracked down on bank lending to try to prevent the economy from overheating after inflation jumped to an 11-year high in November.

``Firms have scaled back production to avoid a quick build- up of inventories as they expect export growth to slow,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Monetary tightening has added credit constraints on company expansion.''

Output of steel products rose 12.7 percent in November from a year earlier after gaining 17 percent in October. Raw steel increased 4.3 percent, slowing from 13.5 percent.

Textile output rose 14.3 percent, down from 15.3 percent. Vehicle production grew 21.7 percent, slowing from 24.3 percent.

Weaker U.S. Demand

For the first 11 months, industrial production rose 18.5 percent from a year earlier, the National Bureau of Statistics said. That compared with the 16.6 percent pace in all of 2006.

Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to export rebates, weaker U.S. demand, and higher prices due to currency gains and production costs.

Shipments to the U.S. rose 15.1 percent in the first 11 months from a year earlier, down from 18 percent through July.

China's economic growth is likely to slow to 10.5 percent in 2008 from 11.4 percent this year on tightening measures, the Asian Development Bank said today. The Organization for Economic Co-operation and Development forecasts a decline to a 10.7 percent pace on reduced demand for exports.

Inflation accelerated to 6.9 percent in November and the trade surplus pumped $26.3 billion into the economy. The government this month named inflation and overheating as the biggest threats to growth in 2008.

Lending Crackdown

China last week announced the largest increase since 2004 in the proportion of deposits that lenders must hold as reserves, a 1 percentage point jump to 14.5 percent. The People's Bank of China has raised interest rates five times this year, pushing the one-year lending rate to a nine-year high of 7.29 percent.

The government this week said state-owned companies will be required to pay dividends of as much as 10 percent next year, a curb on growth in fixed-asset investment that the State Council, or cabinet, describes as ``too rapid'' and a ``prominent problem.'' The nation is at risk of industrial overcapacity.

Factory and property spending in urban areas probably rose 26.6 percent in the first 11 months of 2007 from a year earlier, a Bloomberg News survey showed. That would be down from the 26.9 percent pace through October, another sign that cooling measures may be starting to have an effect.