BEIJING • China's economy expanded at a steady 6.7 per cent in the third quarter and looks set to hit Beijing's full-year target, fuelled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.
Yesterday's data painted a picture of an economy that is slowly stabilising but increasingly dependent on government spending and a housing boom for growth, as private investment and exports remain stubbornly weak.
Gross domestic product rose 6.7 per cent in the third quarter from a year earlier, smack in the middle of the government's goal of 6.5 to 7 per cent growth for this year. On a quarterly basis, it grew 1.8 per cent. Service industries paced the expansion in the first nine months of the year, expanding 7.6 per cent.
The government released guidelines last week for reducing debt, yet past pledges have often been ignored as rampant credit growth fuels surging house prices in the nation's biggest cities.
"It's amazing what a housing bubble and crazy debt increases can achieve," said Mr Michael Every, head of financial markets research at Rabobank in Hong Kong. "This is not sustainable, but the alternative is nothing anyone wants to think about."
Releases for last month showed the continuing shift in China's economy towards consumer spending, with retail sales gains outpacing the rise in industrial production.
Rise in gross domestic product in the third quarter from a year ago.
Expansion in the service industries in the first nine months of the year.
Number of cities introducing purchase restrictions and toughening mortgage lending since late last month.
Investment spending continues to be led by the public sector, the figures showed, with subdued private business spending highlighting the problem of high levels of debt.
"Economic activity seems to be holding up reasonably well," said Mr Julian Evans-Pritchard, an economist at Capital Economics in Singapore. "Nonetheless, the recent recovery is... on borrowed time, given that it has been driven in large part by faster credit growth and a property market boom, both of which policymakers are working to rein in."
Economists believe the greatest near-term risk for China is a possible correction in the high-flying property market, which accounts for about 15 per cent of GDP.
Real estate investment accelerated last month 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 per cent last month year on year, and property sales surged 34 per cent, though new construction starts fell 19.4 per cent, suggesting sentiment among builders may be shifting as the government looks to cool the buying frenzy.
Some economists believe Beijing has had to "double down" on stimulus this year to meet its official growth range of 6.5 to 7 per cent, 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.
At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late last month, reversing two years of easing to support home buyers.
"Growth seems to be underpinned by real estate," said Mr Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group in Hong Kong. While manufacturing and exports confront challenges, "growth no longer concerns the PBOC this year", he said, referring to the People's Bank of China.