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China Posts Best Quarterly Growth Figure Since 2015
Slowdown expected in the second half
By Mark Magnier
Updated April 17, 2017 12:10 a.m. ET
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BEIJING—Higher growth returned to China as policies to stimulate the economy gathered steam even as Beijing juggled measures to rein in financial risk.
China reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market.
The pace was a notch up from the 6.8% expansion in the previous quarter and puts China well ahead of its annual target of about 6.5% growth.
After decades of breakneck expansion, China’s leaders have been preparing the ground for slower but more sustainable growth, dubbed the “new normal,” but have also tried to keep growth from decelerating too quickly. Last year, after Beijing loosened credit and ramped up spending, quarterly growth started picking up in the second half.
Economists say they expect the momentum to carry the world’s second-largest economy into the second quarter before running out of steam. “They banked growth in the first half, so they can afford to have it slow later,” said IHS Markit economist Brian Jackson.
The buoyant growth is welcome in a key political year when Beijing is set to hold a once-in-five-years Communist Party congress to appoint top leaders. It is also likely to fuel more debt and bad loans at a time when China is trying to ward off longer-term instability and a possible financial crisis. Credit last year grew at a pace more than twice as fast as the economy, with total debt now at an estimated 277% of the economy, up from 125% at the end of 2008.
Overall credit last month swelled even though Beijing has squeezed banks as a way to ward off financial risk; much of the lending has shifted to nontraditional sources.
The 6.9% figure, published by the National Bureau of Statistics on Monday, was higher than a 6.8% increase forecast by economists polled by The Wall Street Journal.
“There’s been a very significant improvement in headline growth, but risks remain,” said Commerzbank economist Zhou Hao. “Credit is unlikely to grow 12% forever.”
March data was roundly better than expected. Value-added industrial output, a rough proxy for economic growth, expanded 7.6% from a year earlier, accelerating from a 6.3% increase in the first two months of 2017. Retail sales surged a surprising 10.9% in March from a year earlier, from a 9.5% increase in February.
Electricity consumption and rail freight—viewed by many economists as more reliable indicators of demand than China’s headline gross domestic product figure—also posted strong increases in the first quarter. China’s official manufacturing purchasing managers index also hit a five-year high in March, its eighth consecutive month in expansionary territory.
A still-robust property market contributed to demand. Investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, speeding up from the 8.9% expansion in the first two months. Even though home-sales growth slowed slightly, construction starts rose 11.6% for the full January to March period, up from 10.4% in the first two months, suggesting a strong pickup in March.
Meanwhile, recent concerns about a weakening currency and capital outflows have become less pressing as the yuan has stabilized against the U.S. dollar. Property sales in the first quarter rose by more than 20%.
But many of the drivers that have powered the recent expansion are expected to falter by the second half of 2017, economists say.
China’s central bank has gradually tightened credit using short-term lending instruments, wary of rapidly rising debt and growing speculation in asset markets. That, along with increased mortgage and purchase restrictions, are expected to weaken the property market in coming months—which accounts for 25% to 30% of China’s economy including related industries, according to DBS—with knock-on effects for construction and raw-material firms.
Fiscal spending rose by more than 20% in the first quarter, though after years of debt-fueled investing in bridges, highways and high-speed rail lines, such stimulus is becoming less productive for growth, economists say, given that many of the best projects have been completed.
Consumption—spurred on last year by measures such as tax breaks for buyers of energy-efficient vehicles—decelerated in January and February before recovering in March, while commodity prices have likely peaked, which could undercut producer prices and industrial profit in coming months.
“By the end of this year or the beginning of next year, GDP could slow down pretty quickly,” said Société Générale CIB economist Klaus Baader. “We’re already seeing the harbingers gradually emerging.”
—Pei Li and Liyan Qi contributed to this article.
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