China’s GDP grows 6.7pc in first quarter in good start to 2016Posted: April 15, 2016
But reliance on stimulus and property investment could do harm in the long run as nation tries to overhaul its economy, analysts say
The mainland economy expanded 6.7 per cent in the first quarter from a year earlier, in a sign of stabilisation after Beijing took a page from its old playbook of bolstering growth with stimulus measures and property investment.
Analysts said that on face value, the latest growth number was a positive sign for Beijing, but stimulus-driven growth could do more harm than good for the country in the long run.
Although it is the lowest level in the last six years, Beijing is taking the 6.7 per cent rise in first-quarter gross domestic product as a “good start” for 2016. In particular, the old growth engines of industrial output and fixed-asset investment, especially in real estate, are gaining momentum.
Behind the recovery is a government plan to propel economic development, with infrastructure projects fast tracked, banks lending money at unprecedented speed, and Beijing making it clear it will do whatever takes to keep growth above 6.5 per cent.
Fudan University economics professor Li Weisen said the strategy was “like smoking opium to look healthy”.
“It’s a very dangerous and irresponsible approach in the long run – existing debts are hard to repay, and new debts are piling up,” Li said.
While the central government has pledged to cut corporate debt and phase out excess capacity, its focus for now is to stop growth from sliding too quickly. And the numbers released yesterday show Beijing is achieving short-term economic stability.
Industrial output expanded 6.8 per cent in March, the strongest growth in nine months, according to the National Bureau of Statistics. Retail sales in March grew 10.5 per cent from 10.2 per cent in the January-February period, while first-quarter growth in fixed-asset investment accelerated 10.7 per cent.
“They sound like robust numbers … China can feel, in the short term, proud that they’ve got the economy moving forward again, but there will be a hangover if they can’t get leverage under control and find a growth model more efficient,” said Scott Kennedy, a director with the Washington-based Centre for Strategic and International Studies.
Mainland banks loaned a record 4.61 trillion yuan (HK$5.51 trillion) in the first quarter, according to central bank data released yesterday. The was more that even the 4.58 trillion yuan in new yuan credit in the first quarter of 2009 when Beijing was in pouring money into the economy to drive growth.
Zhao Yang, chief China economist with Nomura in Hong Kong, said the pick-up in property investment might fizzle in the second half, and China was seeking short-term gain at the danger of longer-term loss. “The room for the government to continue its stimulus practices is getting smaller and smaller,” Zhao said. “Maybe you can push up property prices this year, but can you push up prices again next year?”
On top of that, state-owned enterprises, which were supposed to tighten belts and streamline their operations as part of the country’s economic restructure, were actually investing aggressively – state sector investment rose 23.3 per cent in the first quarter, compared to 5.7 per cent for the private sector.
“[It] points to a further rise in leverage and fall in return on assets in the sector, a negative signal for the sustainability of growth,” Moody’s Sovereign Risk Group senior vice-president Marie Diron wrote in a note. As such, China’s stimulus “may further increase longer-term imbalances”, Diron said.
Moody’s revised China’s credit rating outlook to negative early last month, triggering a strong response from Beijing as top economic officials talked down “hard-landing” risks in the world’s second-biggest economy.
While near-term hard-landing risks were “significantly lower” than a few months ago, the country’s recovery “could be modest and temporary” and the rebound in March economic activity “may not be sustainable”, JPMorgan chief China economist Zhu Haibin, wrote in a note to clients.
“[China’s] policy easing cannot be large scale and long lasting, as it conflicts with other policy objectives such as financial stability and economic rebalancing,” Zhu said.
In addition, the statistics bureau was more economical about data transparency for the first quarter. It did not publish the usual quarter-on-quarter GDP numbers or contribution breakdown by investment, consumption and trade. Bureau spokesman Sheng Laiyun said the numbers were still being calculated.
“There is still a lot of ambiguity in the numbers and a lot of anxiety in other type of data,” Kennedy said. “No one should pop champagne bottles yet.”
Additional reporting by Wendy Wu
Source: SCMP “China’s GDP grows 6.7pc in first quarter in good start to 2016”