Business International

China first-quarter GDP grows faster than expected 6.9 percent, steel output hits record

Image: An employee works at a steel factory in Dalian, Liaoning Province, China, June 27, 2016. Picture taken June 27, 2016. REUTERS/Stringer

By Kevin Yao

BEIJING (Reuters) – China’s economy grew 6.9 percent in the first quarter from a year earlier, slightly faster than expected, supported by a government infrastructure spending spree and a frenzied housing market that is showing signs of overheating.

Analysts polled by Reuters had expected the economy to expand 6.8 percent in the first quarter, the same pace as in the fourth quarter of 2016.

First-quarter growth was the fastest since the third quarter of 2015, with March data showing investment, retail sales, factory output and exports all grew faster than expected.

The strong reading should help underpin wobbly global financial markets but adds to worries that China’s government is still relying too heavily on stimulus and “old economy” growth drivers and is not doing enough to tackle risks from an explosive build-up in debt.

While China’s data has been largely upbeat so far this year, many analysts widely expect the world’s second-largest economy to lose steam later in the year as the impact of earlier stimulus measures starts to fade and as local authorities step up their battle to rein in hot housing prices.

Real estate investment growth accelerated to 9.1 percent in the first quarter from a year earlier, as the pace of new construction starts quickened despite intensified government cooling measures.

Though policymakers have pledged repeatedly to push reforms to head off financial risks and asset bubbles, the government is seeking to keep the world’s second-largest economy on an even keel ahead of a major leadership transition later this year.

The government is aiming for growth of around 6.5 percent in 2017, slightly lower than last year’s target of 6.5-7 percent and the actual 6.7 percent, which was the weakest pace in 26 years.

Economic data was up across the board in March, with factory output increasing at the fastest pace since December 2014 and firms stepping up capital investments after a slowdown last year.

Industrial output rose 7.6 percent in March, with steel output the highest on record, according to Reuters data, adding to evidence of a global manufacturing revival that is buoying prices of industrial materials from iron ore to coking coal.

But consumption also appears to be picking up, contributing to 77.2 percent of first-quarter growth, while retail sales growth picked up to 10.9 percent after slowing in the first two months of the year.

Still, many analysts expect economic growth to cool later this year as the impact of earlier stimulus measures starts to fade and as local authorities resort to ever-tougher measures in a bid to get soaring home prices under control.

Beijing also is continuing to rely heavily on new credit to generate growth as productivity slows, despite worries about debt risks.

China’s banks extended the third highest loans on record in the first quarter, though March lending was less than expected.

At the same time, China’s central bank has shifted to a tightening bias, and is using more targeted measures to contain risks in the financial system, after years of ultra-loose settings.

It has raised short-term interest rates several times already this year, and further modest hikes are expected as it tries to coax debt-laden firms to reduce leverage.

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

Copyright 2017 Thomson Reuters. Click for Restrictions.

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