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Robust China powers on as demand strengthens

CHINA'S record imports and a rebound in lending signalled strength in demand that offers a bright spot in a global economy contending with Europe's debt crisis and weakening US job gains.

CHINA'S record imports and a rebound in lending signalled strength in demand that offers a bright spot in a global economy contending with Europe's debt crisis and weakening US job gains.

Shipments from abroad jumped 30 per cent and new local currency loans were a more-than-forecast 548.5 billion yuan ($A82 billion), reports in the past two days showed.

August figures released on Sunday indicated that policymakers have made progress in stemming inflation, which eased from a three-year high, to a 6.2 per cent year-on-year pace.

The data may bolster confidence that the world's second-largest economy is weathering Premier Wen Jiabao's campaign to defuse price pressures and financial turmoil abroad. G7 finance chiefs vowed "a concerted effort" to support expansion as Europe's debt woes and zero jobs growth in the US increase the risks of a renewed recession.

"This all points to a robust economy, and a hard landing looks an increasingly distant scenario," said Liu Li-gang, a Hong Kong-based economist with ANZ, who previously worked for the World Bank. "China is less reliant on external demand and more dependent on investment and consumption, so the deteriorating global outlook will have less of an impact than during the previous financial crisis."

China, the biggest contributor to world growth last year according to the International Monetary Fund, may expand more than five times faster than the US and the euro zone this year, according to forecasts from Citigroup and HSBC.

Citigroup estimates China will grow 9 per cent this year and next year after a 10.4 per cent pace last year, as Mr Wen's campaign to rein in consumer prices takes effect and export growth slows.

August's inflation rate declined for the first time in four months as gains in food costs eased to 13.4 per cent, the statistics bureau said. Industrial output growth moderated to 13.5 per cent and expansion in fixed-asset investment in the first eight months of the year slowed to 25 per cent.

The data "fell short of signalling any acute economic difficulties while inflation showed only modest improvement," said Yao Wei, a Hong Kong-based economist with Societe Generale. "The authorities are most likely to wait and see for another month at least before making any clear shifts in policy direction."

Mr Wen reiterated last month that stabilising prices remains the top priority and that the government will not alter the direction of economic policies after a global stocks rout and fears that developed nations will sink into recession triggered speculation he may start to unwind monetary tightening.

Growth in August imports, which topped the estimates of all 29 economists in a Bloomberg survey, adds to evidence that tightening measures aren't choking expansion.

Purchases of crude oil rose to a three-month high, copper climbed to the highest since January and iron-ore purchases were the largest since March, the customs bureau said.

Exports in August jumped 24.5 per cent to $US173.3 billion ($A165 billion), just shy of the previous month's record.

"There's a huge amount of resilience in the economy, which is supporting higher imports," said Alistair Thornton, of IHS Global Insight. "But it's inevitable that weakness in the US and euro zone economies will slow export growth."

The People's Bank of China has raised interest rates five times over the past year and curbed lending by boosting banks' reserve requirements nine times to a record 21.5 per cent for the biggest institutions. The benchmark one-year lending rate is 6.56 per cent and the one-year deposit rate is 3.5 per cent.

Domestic loans used to fund fixed-asset investment grew only 9 per cent in the first eight months of the year, while so-called "self-raised funds" jumped 29.4 per cent, according to statistics bureau data.

Some companies are taking advantage of the credit squeeze to lend at higher interest rates using banks as intermediaries. Time Publishing and Media made an entrusted loan of 60 million yuan through the Bank of Communications at an annual interest rate of 25.4 per cent, according to an August 29 statement to the Shanghai stock exchange.


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