Daily Management Review

Strongest Economic Growth Since 2015 Noted Ion China Driven By Steel And Stimulus


04/17/2017




Strongest Economic Growth Since 2015 Noted Ion China Driven By Steel And Stimulus
As higher government infrastructure spending and a gravity-defying property boom helped boost industrial output by the most in over two years, China's economy expanded faster than expected in the first quarter.
 
With forecast-beating March investment, retail sales and exports all suggesting the economy may carry solid momentum into spring, growth of 6.9 percent was the fastest in six quarters.
 
But most analysts worry Beijing is still relying too heavily on stimulus and "old economy" growth drivers, primarily the steel industry and a property market that is showing signs of overheating and say that the first quarter may be as good as it gets for China this year.
 
"The Chinese government has a tendency to rely on infrastructure development to sustain growth in the long term," economists at ANZ said in a note.
 
"The question we need to ask is whether this investment-led model is sustainable as the authorities have trouble taming credit. We need to watch closely whether China’s top leadership will send a stronger signal to tighten monetary policy shortly."
 
Reaching a record 6.93 trillion yuan ($1 trillion) in the first quarter -- roughly equivalent to the size of Mexico's economy was China's total social financing, a broad measure of credit and liquidity in the economy, even as top officials vowed to crack down on debt risks.
 
Compared to a year earlier, spending by the central and local governments rose 21 percent at the same time.
 
That helped to eclipse economists' forecasts of 6.8 percent year-on-year and goose the pace of growth in the first quarter well above the government's 2017 target of around 6.5 percent.
 
Even if activity starts to fade later in the year, as many analysts widely expect, such a strong bolt from the gate could see Beijing once again meet its annual growth target.
 
"Main indicators were better than expected...which laid a good foundation for achieving the full-year growth goals," statistics spokesman Mao Shengyong said at a news conference.
 
To drive expansion in the first quarter, China's policymakers leaned on infrastructure and real estate investment once again. Helped offset slightly weaker growth in the services sector growth in both areas has accelerated from last year.
 
"Faster growth in industrial output is the primary factor in the first quarter surprise, and due mostly to higher value-added growth related to supply-side consolidation in heavy industry," said Brian Jackson, China economist at IHS Global Insight.
 
The pace of new construction quickened despite intensifying government measures to cool soaring prices and expanding by 9.1 percent on-year, real estate investment also remained robust in the first quarter, expanding by 9.1 percent on-year.
 
Most analysts predict the cumulative weight of property curbs will eventually temper activity, not produce an outright crash and agree the heated property market poses the single biggest risk to China's economic growth.
 
"Sales have started falling, which means tightening measures are starting to take effect," said Shen Jianguang, an analyst at Mizuho Securities in Hong Kong, noting that will start to drag on both the services and construction sectors.
 
(Source:www.reuters.com) 






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