China’s latest economic data paints a mixed picture
GDP growth, while lower, is on track to meet 2016 target, while consumption and technology may be contributing more to the economy than expected
The slowing rate of growth in China’s economy appears to have stabilised. First-quarter gross domestic product grew 6.7 per cent year-on-year, according to the National Bureau of Statistics. While lower than the 6.8 per cent year-on-year growth recorded in the previous quarter, this is in line with the government’s target of 6.5-7 per cent for the year and strengthens the prospect of achieving it. It is also the lowest since the first quarter of 2009 during the financial crisis, but the economy is much larger now.
It comes as a relief to policymakers amid continued downward pressure on the economy. It will also come as a relief abroad, given that the global economy is weighed down by stagnation and recession in major trading partners that look to China and the US for the kind of growth that can boost demand. However, many analysts remain sceptical whether such growth can be sustained in the longer term without reforms. There is no need to drill down very deeply into the latest data to see why.
On the face of it, an expansion in industrial output last month of 6.8 per cent – the strongest in nine months – along with higher retail sales, and accelerated quarterly growth in fixed asset investment, sound like evidence the economy is on the move again. But this is a result of the government supporting growth with heavy targeted stimulus, at the expense of the goals of cutting corporate debt, phasing out excess industrial capacity and relying more on consumption and services for sustainable growth. Mainland banks loaned a record 4.61 trillion yuan (HK$5.51 trillion) in the first quarter, according to central bank data. State-owned enterprises, far from restructuring, increased investment by more than 23 per cent, compared with 5.7 per cent in the private sector.
By showing it is ready to do whatever it takes to keep growth above 6.5 per cent, Beijing may have avoided a hard landing. But in the process it has prompted questions whether the recovery is sustainable. and underlined the importance of reform.
Evidence of continued downward pressure is to be found in the quarter-on-quarter growth rate, seen by some economists as a better indicator of underlying growth momentum. Seasonally adjusted, it came in at 1.1 per cent, well short of expectations of 1.5 per cent.
On the brighter side, there is evidence of continued healthy growth in the services sector, raising the hope that consumption and technology may be contributing more to the economy than revealed by statistical sampling used for GDP purposes.