China's economic growth picks up in 2017

Beijing

CHINA'S economy grew 6.9 per cent last year, its first year-on-year acceleration since 2010, on a robust industrial sector and solid exports as the global economy picked up, supporting demand for Chinese goods.

The upbeat data will leave room for further structural reform and deleveraging, say analysts, who add that recent stringent anti-polluting measures have already started to weigh on production.

"The economy is cruising along at impressive speed, breezing past potential speed bumps with apparent ease," said Frederic Neumann, co-head of Asian economics research at HSBC. "If China keeps up its current speed, the next stop will be inflation. Some cooling of growth momentum at the start of 2018 would thus be welcome to curtail price pressures."

In 2016, China's economy grew 6.7 per cent, slower than the previous year and analysts had expected that figure to continue to drop as the government has been implementing a string of measures to curtail debt, cool the property sector and clean the country's notoriously dirty skies. In a key political meeting last October, President Xi Jinping emphasised the need for qualitative growth and promised to tackle the structural imbalances in the economy.

"With growth being strong, the government may feel comfortable to focus more on reducing major risks, including financial-sector risks," said Wang Tao, head of China economic research at UBS in Hong Kong. "We expect 2018 GDP growth to moderate."

For the fourth quarter of 2017, the economy grew 6.8 per cent, unchanged from the previous quarter. However, there are increasing signs that the economy will start to cool. Trade was disappointing in December and it is unlikely that both imports and exports will maintain their momentum into the new year.

Fixed-asset investment growth slowed to 7.2 per cent in 2017, the slowest rate in nearly 20 years.

Industrial output grew 6.2 per cent in December, up slightly from 6.1 per cent in November.

Retail sales grew 9.4 per cent in December, missing analysts' forecasts of 10.1 per cent.

While production of electricity and non-ferrous metals picked up last month, growth in the output of steel, cement and glass all slowed. This was due to the stopping of thousands of industries over the winter months. But while production might pick up after March, protectionist measures expected from the United States could hinder the rebound.

"In my view, China will slow. The modest deceleration is due primarily to three factors. Last year's boost from strong export growth is unlikely to be repeated, new home sales are likely to slow in response to policy restrictions, and the growth rate of infrastructure investment will cool.

The government will continue to proactively address risks in the financial system, but there are no signs of significantly tighter monetary policy and inflation should remain moderate," said Andy Rothman, economist with Mathews Asia.

However, many analysts question the reliability of the data and say growth may actually have been slower than stated in the last quarter as the economy has shown increasing signs it is feeling the pinch of tighter credit conditions and the surprising blue skies over Beijing. Many infrastructure projects have reportedly been abandoned around the country as banks pressure local governments to clean up their balance sheets.

The Inner Mongolia region has admitted to adding on two-fifths on its official industrial production for 2016. Other regions have followed suit with the city of Tianjin just a few hundred kilometres south of Beijing also admitting to falsifying GDP data by one-third last year. The city of Baotou in the north even said it had revised up its fiscal revenue for last year by 50 per cent.

"Economic growth in China probably slowed last quarter, even though the official figures paint a picture of continued stability. Looking ahead, we think tight monetary conditions and slowing credit growth will continue to weigh on the pace of economic expansion in coming quarters. Indeed, we expect growth to average a mere 4.5 per cent this year," said Julian Evans-Pritchard, economist with Capital Economics.