China keeps 2016 growth on track but faces uphill battle in 2017
China’s economy expanded by 6.7 per cent last year, its slowest growth in 26 years but within the central government’s target range, according to official data.
Analysts said it was an open question whether the result announced on Friday would bolster confidence in the country’s US$11 trillion economy, given its dependence on debt-fuelled growth and the threat of a trade war with the United States.
Already beset by industrial overcapacity, money outflows and choking pollution, the economy – which totalled 74.4 trillion yuan (HK$84.2 trillion) last year – is expected to face fresh trade headwinds from Donald Trump’s administration in the United States.
To make matters worse,
Beijing’s room to move policy levers such as bank loans, was shrinking while uncertainties
beyond its borders, such as Trump and the value of the US dollar, were rising, analysts said.
JP Morgan China chief economist Zhu Haibin said that “arguably the biggest external uncertainty for China” was its relationship with the US, including the risk of US tariffs on Chinese products and the rising tide of protectionism.
The National Bureau of Statistics (NBS) said yesterday that China’s economy expanded by 6.8 per cent in the final quarter of last year, up from 6.7 per cent growth in the third, second and first quarters of 2016.
Analysts said property and infrastructure construction, together with a credit boom, played key roles in stabilising the economy last year.
The central government has said it wants to move away from investment-led growth but its continued reliance on the model raises doubts about whether this will happen.
Fixed-asset investment rose 8.1 per cent last year, while retail sales, a barometer of consumption, gained 10.4 per cent, the NBS said.
Hong Hao, chief strategist of Bocom International in Hong Kong, said China paid a price to meet the target.
“The achievement of last year’s growth target was at a high cost, including the rapid increase in corporate and household debt,” Hong said.
Hong said Beijing should lose its obsession with rapid growth to pursue “a low growth rate, such as 6 per cent” to give it more room to carry out structural adjustment and to cut debt.
The commitment to growth of at least 6.5 per cent flows from the ruling Communist Party’s political promise to the public to double per capita gross domestic product in the decade to 2020.
To meet this goal, the mainland must achieve minimum annual growth targets and so far it has relied on government spending to get there.
Its fiscal deficit is expected to widen to 3.5 per cent of GDP this year, up from 3 per cent in 2016.
Just hours after the NBS released the growth figures on Friday, the People’s Bank of China announced that it was using a “temporary lending facility” to channel cheap funds to a number of designated banks, creating a new tool for the central bank to pump money into the banking system.
Standard Chartered Bank chief China economist Ding Shuang said this year would was an important one in Chinese politics and Beijing might continue to pull policy levers to prime growth.
“China may continue expansionary fiscal policy and a slightly fine-tuned monetary policy to guarantee around 6.5 per cent growth,” Ding said.
The International Monetary Fund is still optimistic about the country’s growth prospects, upgrading its 2017 forecast to 6.5 per cent from 6.2 per cent in its World Economic Outlook released on Monday.
But even if targets are met, there could be lingering concerns about the accuracy of economic data after revelations this week that the northeastern province of Liaoning cooked its books from 2011 to 2014.
“Data distortion harmed the judgment of policymakers in 2016 when the government unleashed a hefty monetary and fiscal stimulus to shore up investment,” Shen Jianguang, chief economist at Mizuho Securities Asia, wrote in a research note.