Official data on Friday showed China’s gross domestic product grew at an annual rate of 6.7 per cent in the first quarter of the year, easing slightly from 6.8 per cent in the fourth quarter as expected.
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China posted its slowest economic growth since 2009 but a surge of new debt appears to be fuelling a recovery in factory activity, investment and household spending in the world’s second-largest economy.
The growth further narrowed from the previous quarter’s 6.8 per cent, which was already the lowest quarterly rate in seven years. This beat economists’ expectations of a 5.9% increase. Inflation came in at 2.1 percent.
Recently released data from the Institute of International Finance shows expected net outflows from China of roughly $530 billion in 2016, down a bit from the titanic $675 billion that zipped out a year ago.
The service sector grew 7.6 percent, outpacing a 2.9 percent increase in the primary industry and 5.8 percent in the secondary industry.
Economists say this reflects the Chinese government’s loosening of credit via state-owned banks over the past year in response to fears of a hard economic landing.
“The uptick is not sustainable in the longer-term, but it could last one or two quarters”, Commerzbank economist Zhou Hao told the Wall Street Journal.
Meanwhile, the National Bureau of Statistics (NBS) stated that though the economic factors hinted towards positive output, the downward pressure can not be underrated.
This compares to last year, when China’s GDP rose by 6.9%, the slowest rate in 25 years.
Sheng also said industrial profits are likely to have improved in the first quarter, but it would need time to see whether the economy really stabilises.
While downgrading the outlook of the global economy, the World Economic Outlook released by the International Monetary Fund (IMF) on Tuesday forecast China’s growth at 6.5 percent in 2016 and 6.2 percent in 2017, both up 0.2 percentage point from its predictions in January.
According to the report, Japanese officials were met by “firm warnings” not to devalue the currency, following commitments made at the G20 meeting earlier this year that governments would not target exchange rates, lest this set off a “currency war”.
The positive economic data makes it less necessary for Chinese policy makers to amp up stimulus immediately, analysts said. “If you look at the main measures, growth is a lot weaker than is probably published”, said Sean Taylor, Deutsche Asset Management’s Asia Pacific chief investment officer, at a briefing in Hong Kong on Wednesday. An index based on data on electricity usage, rail cargo volumes and bank lending showed a drop of 13 percent in the first quarter.
The government has forecast a growth range for the full year of between 6.5 and 7 per cent, and Friday’s figures are seen, tentatively, as a bottoming-out of the slowdown.
“With economic activity data having taken a turn for the better, the key question now is whether the recovery can be sustained”, she wrote in a note.
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It estimates that bank loans potentially at risk in China amount to nearly 1.3 trillion US dollars, which could translate into potential bank losses of 756 billion dollars. The figure is down from 7.3 per cent in 2014 and is the lowest reported by China since 1990.
