Business

China surprises with 6.8% growth in Q4

Decision to prioritise growth may come at a high price with huge increase in debt

BEIJING China's economy grew a faster-than-expected 6.8 per cent in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year.

But Beijing's decision to prioritise its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt.

China's debt to GDP ratio rose to 277 per cent at the end of last year from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note.

The fourth quarter was the first time in two years that the world's second-largest economy has shown an uptick in growth.

But this year, it faces further pressure to cool its housing market, the impact of government efforts at structural reforms, and a potentially testy relationship with a new US administration.

"We do not expect this (Q4 GDP) rebound to extend far into 2017, when a slowdown in the property market and steps to address supply shortages in the commodity sector ought to drag again on demand and output," said Mr Tom Rafferty, regional China manager for the Economist Intelligence Unit.

The economy expanded 6.7 per cent last year, the National Bureau of Statistics said yesterday, near the middle of the government's 6.5-7 per cent growth target but still the slowest pace in 26 years.

Economists polled by Reuters had expected 6.7 per cent growth for both the fourth quarter and the full year.

Housing helped prop up growth again in the fourth quarter, with property investment rising a surprisingly strong 11.1 per cent in December from 5.7 per cent in November, even as house prices showed signs of cooling in some major cities.

Consumer spending was also strong, with retail sales in December rising at their fastest pace in a year on stronger sales of cars and cosmetics.

Fixed asset investment grew 8.1 per cent, the slowest pace since 1999, as investment by private firms slowed again in December on a monthly basis.

Private sector fixed asset investment fell to 4.07 per cent from 4.93 per cent in November, according to Reuters calculations based on statistics bureau data.

Consumption contributed the bulk of growth last year, but income growth didn't pick up, and a measure of China's income inequality rose slightly last year, the statistics bureau said.

LOWER TARGET IN 2017

Amid signs of stabilisation, policy sources told Reuters that China's leaders will lower their economic growth target to around 6.5 per cent this year, giving them more room to push reforms to contain debt risks.

They will not want to let growth fall too sharply, however, ahead of a key party meeting in the autumn when a new generation of leaders will be picked.

"Economic stability is always important but will be an even higher priority ahead of the 19th Party Congress," said Mr Tim Condon, a Singapore-based economist at ING. - REUTERS

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