China third quarter GDP grows 6.7 percent as expected as construction booms, debt rises


China’s economy expanded at a steady 6.7 percent in the third quarter and looks set to hit Beijing’s full-year target, fueled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.

Wednesday’s data painted a picture of an economy that is slowly stabilizing but increasingly dependent on government spending and a housing boom for growth, as private investment and exports remain stubbornly weak.

Some economists believe Beijing has had to “double down” on stimulus this year to meet its official growth range of 6.5 to 7 percent, and say the government’s obsession with meeting hard targets may hurt both planned reforms and the long-term health of the world’s second-largest economy.

“So far this year they have clearly chosen to do everything they can to meet the growth targets, and now there is a little bit of an upward surprise from the housing market which actually will help them with GDP growth this year,” said Louis Kuijs, head Of Asia economics at Oxford Economics in Hong Kong.

“The question really is, is the leadership willing to move to somewhat lower growth targets in order to put growth on a more sustainable footing, or will it feel obliged to continue to hang on to those very high growth targets.”

The economy grew at the same clip in the third quarter year-on-year as in the first and second quarters, as analysts polled by Reuters had expected. Government infrastructure projects and the property boom have spurred prices and demand for raw materials and goods from cement and steel to furniture.

On a quarterly basis, it grew 1.8 percent, again in line with expectations but easing slightly from the previous period.

PROPERTY MARKET BIGGEST RISK FOR NOW

Economists believe the greatest near-term risk for China is a possible correction in the high-flying property market, which accounts for about 15 percent of GDP.

Real estate investment accelerated in September and home sales soared, highlighting persistent investor demand even as more cities tighten measures to curb prices.

Property investment growth ticked up to 7.8 percent in September on-year, and property sales surged 34 percent, though new construction starts fell 19.4 percent, suggesting sentiment among builders may be shifting as the government looks to cool the buying frenzy.

A wave of restrictions imposed on buyers in major cities since early October has resulted in a sharp drop in sales and authorities are stepping up pressure on speculators.

Shanghai said on Tuesday it had punished some property agencies for falsifying contracts and had launched probes into some developers suspected of raising prices without authorization.

Most economists do not expect house prices to collapse, arguing the market is supported by steady migration to bigger cities, but memories are still fresh of authorities’ heavy-handed attempt to cool surging stock markets last year, which triggered a crash and an unprecedented government rescue.

The property craze has also heightened concerns about China’s growing debt and the risks to its financial system, as much of the record loan growth has been driven by mortgages.

China’s debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years.

“We think that the cooling measures in property market will weigh on China’s economy over the coming quarters,” Commerzbank economist Zhou Hao in Hong Kong said in a note.

But statistics bureau spokesman Sheng Laiyun said “the impact (of property adjustment measures) on the economy will not be very big” in the short-term.

MOST SEPTEMBER DATA SHOWS MODEST IMPROVEMENT

Consumption contributed 71 percent of GDP growth in the first three quarters of the year, compared with 66.4 percent for 2015. The increase is partly due to contracting net exports but also indicates some success in Beijing’s attempts to rebalance the economy from an over reliance on investment-led growth.

September indicators were mostly in line with expectations and improved slightly from August, but industrial output growth unexpectedly cooled to 6.1 percent from a year earlier, versus expectations for 6.4 percent.

Fixed-asset investment rose 8.2 percent in January-September from a year earlier, as expected, as the government cranked up infrastructure spending to support the economy. Fiscal spending in the nine-month period climbed 12.5 percent.

Private investment growth picked up to 4.5 percent in September after falling to record lows in recent months, but still significantly lags investment by state-owned firms. For the first nine months, private investment rose just 2.5 percent.

Retail sales rose 10.7 percent in September on-year, beating expectations of 10.6 percent as home buyers bought appliances and decorated, while subsidies fueled strong sales of new cars.

China’s economy expanded 6.9 percent in 2015, the slowest pace in a quarter of a century.

While analysts expect China to meet its growth target this year, as usual, many remain skeptical of the official numbers, especially as growth has remain unchanged for three straight quarters even as the country attempts a major economic transition.

“The official GDP figures remain too stable to tell us much about the performance of China’s economy. Our own measure of economic activity suggests that growth actually picked up last quarter, though the improvement clearly won’t last,” Julian Evans-Pritchard, China economist at Capital Economics in Singapore wrote in a note.

Capital Economics’ calculations suggest the economy is growing at around 5 percent.

(Reporting by Kevin Yao; Writing by Elias Glenn; Editing by Kim Coghill)

Source: Reuters “China third quarter GDP grows 6.7 percent as expected as construction booms, debt rises”

Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


3 Comments on “China third quarter GDP grows 6.7 percent as expected as construction booms, debt rises”

  1. Fre Okin says:

    China should lure more foreign companies to set up research and manufacturing facilities and share the rewards. UK and US in particular are best partners in the English speaking world.

    Beijing should encourage banks to loan to such companies. Innovation is the only way for long term economic health.

    Money thrown into housing, infrastructure without a ‘machine head’ industry will not boost the economy. It will only end up like ghost towns with no industry supporting it.

    Most of these industries are high tech, like biomedical products, precision 3D printing for body parts, machines, material science, artificial intelligence,robots, drones, smart machines. It will mean Chinese engineers needed to design the products and write thousands or million lines of software code to make a superior Made In China product.

    Low tech stuff won’t survive for long, so China need to support high tech product industries to generate more real jobs, not the temporarily high real estate, stock market wealth which only generate fake wealth when the Price Earning Ratio is out of Normal Historical Range.

    Like

  2. Joseph says:

    That’s a very bad news, for the West. As their economies continue to tumble, Chinese economy is standing like a solid rock blasted by heavy waves.
    The Reuters is obviously continuing its negative reporting as they point out ‘debt rises’. Whatever that ‘debt rises’, it would hardly matter. Every ongoing organization has debt. It is a normal ongoing accounting process. What is abnormal is the huge mounting Western debts. Chinese and SE Asian economies is puffing like locomotives. Rising debt only means that they cover more grounds that they earn more income. But Western economies are stagnant, even going backward. They have no more ground to cover, only maintaining existing grounds. No extra ground means no extra income. So how are they going to pay their debts? One should wonder how they manage to grow debts so huge. The only explanation is corruption. In real world, corruption does not plague only undemocratic countries, but any countries with bad governance and thief mentality, including democratic countries. It is after all about the mentality, not the ideology. But of course Reuters won’t write that story.

    Like

  3. Steve says:

    Usually, it is the housing industry leading a nation’s domestic economy out of a recession by employment of blue collar workers such as builders, plumbers, electricians, labourers and all trade workers out of unemployment, thus encouraging potential buyers, investors, sellers and developers. As long as China imposes a high deposit of say, 40 to 60 % on home loans, a US style subprime can be avoided due to increase in equity by the buyer/owner.

    The important criteria is that China is not suffering from a housing and property slump with increased unemployment of trade workers.

    Like


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s