China stimulus package start kicking off

China’s industrial-production growth slowed in the first two months of the year as exports slid at a record pace. Bank lending jumped as the nation’s 4 trillion stimulus began to take effect. Output rose 3.8 percent in January and February from a year earlier, slowing from a 5.7 percent increase in December. New lending quadrupled in February to 1.07 trillion yuan from a year earlier, the central bank said.

The export engine has died, China is in a ‘help themselves’ mode, pump-priming like crazy to increase fixed- asset investment and keep retail spending going.

Premier Wen Jiabao is aiming to achieve 8 percent economic growth this year through tax cuts and spending on roads, railways and energy pipelines. He must contend with rising unemployment, falling house prices and the risk a surge in lending will result in bad debt for banks.

Exports fell a record 25.7 percent in February, consumer prices fell for the first time in six years, and a report today showed retail sales grew at the slowest pace in two years in the first two months of the year.

Spending on real-estate development grew only 1 percent in the first two months from a year earlier as home prices fell.

Among more upbeat indicators, bank lending has responded to calls by the government to support the spending package and the broadest measure of money supply climbed at the fastest pace in more than five years in February.

A more-than-estimated 26.5 percent jump in urban fixed asset investment in January and February was also interpreted by some economists as a sign Wen’s package may help him achieve his 8 percent GDP growth target.

The world is looking to see if China’s growth can support commodity prices and demand from its Asian neighbors. Benchmark steel prices in China surged 46 percent between November and February and iron ore imports the world’s largest buyer of the steelmaking ingredient gained 22 percent last month.

China’s construction equipment sales may jump 20 percent in the second half as orders recover on the government stimulus.

China’s vehicle sales surged 25 percent in February after the government cut taxes on some models. General Motors Corp. has raised its forecast for the auto industry’s sales growth in China this year to as much as 10 percent from less than 3 percent.

Gross domestic product grew 6.8 percent in the fourth quarter, the least since 2001, with industrial production expanding 5.4 percent in November, the weakest pace in almost a decade. The International Monetary Fund expects the economy to grow 6.7 percent this year.