China's 2016 growth is slowest in 26 years

A man crosses a street with a child as the CCTV Tower looms in the background in the central business district in Beijing, China on Jan 20, 2017.
A man crosses a street with a child as the CCTV Tower looms in the background in the central business district in Beijing, China on Jan 20, 2017.PHOTO: AFP

Economy expected to slip further, from 6.7% growth last year to 6.5% this year

China's economy grew 6.7 per cent last year, its slowest since 1990, and is expected to slide further this year but at a stable clip to 6.5 per cent.

Its performance last year, helped along by larger government spending and a buoyant property market, came with costs as debt went up and the risk of asset bubbles heightened.

The economy grew 6.8 per cent in the last quarter of 2016, the first quarterly pickup since 2004, showing that the growth momentum is "quite solid", said Mr Ding Shuang, head of Greater China Economic Research at Standard Chartered Bank.

China's stock markets yesterday rose in reaction to the news, with the benchmark Shanghai Composite Index going up 0.7 per cent to close at 3,123.14 points.

The National Bureau of Statistics director, Mr Ning Jizhe, who announced the data at a press conference yesterday, said the last quarter's growth figure was a "good start" to the goal of achieving an annual growth rate of 6.5 per cent up till 2020.

"China's (growth) was within a proper range with improved quality and efficiency," he added.

Consumption made up the bulk of growth last year, with retail sales increasing 10.9 per cent from a year earlier in December. Housing helped too, with property investment rising by 11.1 per cent.

But the 6.7 per cent growth last year could not have been achieved without government support, noted Mr Ding, both in the monetary and fiscal policies.

Separately in a report, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote that the 6.7 per cent growth came at the expense of a 15.4 per cent loan growth, while outstanding credit likely rose to about 264 per cent of GDP.

Still, the government is likely to continue to provide policy support this year though not by as much as last year, Mr Ding told The Straits Times. "The monetary policy will be less accommodative, but fiscal policy will continue to be expansionary," he said.

With the government likely having a growth target of 6.5 per cent - the minimum average rate set for the 13th five-year plan ending in 2020 - it would want to offset any downside to the economy.

This downside would include the property sector, which is set to cool after tightening measures last year, and "possible external risks from global protectionist policies", with United States President Donald Trump posing the biggest risk, he said. Mr Trump has threatened to slap heavy tariffs on Chinese goods to boost employment back home.

IHS Markit's senior economist, Mr Brian Jackson, noted that a trade war would be costly to the Chinese economy and "we expect China to try to avoid escalation".

But it is not all gloom and doom.

Exports, which have been sluggish, have seen improving demand from the US and Europe in recent months, noted Mr Ding. Services have seen stable growth, making up 51.6 per cent of GDP last year, with the trend likely to continue.

Consumption is still quite robust despite income growing less than GDP growth, he added.

A version of this article appeared in the print edition of The Straits Times on January 21, 2017, with the headline 'China's 2016 growth is slowest in 26 years'. Print Edition | Subscribe