China economy stabilises with 6.7% growth in Q1, surge of new credit fuels property rebound

The night skyline of the Bund in Shanghai.
The night skyline of the Bund in Shanghai.PHOTO: ST FILE

BEIJING (BLOOMBERG) - China's economy stabilised last quarter and gathered pace in March as a surge in new credit helped the property sector rebound while raising fresh question marks over the sustainability of the debt-fueled expansion.

Gross domestic product rose 6.7 per cent in the first quarter from a year earlier, meeting the median projection of economists Bloomberg surveyed and in line with the government growth target of 6.5 per cent to 7 per cent for the full year. New credit, industrial output, fixed-asset investment and retail sales all picked up in March and beat analysts' forecasts.

Signs of stabilization in the world's second-biggest economy and bets on a subdued pace of US monetary tightening have helped spur rallies in oil, metals and global equities in recent weeks. Whether China continues to recover, or resumes its slide toward slower growth, may depend on how much oomph is left from prior easing and whether its effect spreads beyond property and government-led projects.

"The economy has stabilized thanks to a flood of liquidity and improved sentiment in the property market," said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group in Hong Kong. "It is not clear whether the momentum is sustainable. So far, the government seems to be the solo singer. It is critical to re-engage private investment."

Fixed-asset investment jumped 10.7 per cent in the first three months from a year earlier, compared to the forecast of 10.4 per cent and 10.2 per cent in the first two months. Property- development investment climbed 6.2 per cent from a year earlier while new property construction jumped 19.2 per cent. Home sales by area surged 35.6 per cent.

Aggregate financing was 2.34 trillion yuan (S$491.08 billion) in March, the People's Bank of China said, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey. New yuan loans were 1.37 trillion yuan, compared with an estimate of 1.1 trillion yuan. M2 money supply increased 13.4 per cent from a year earlier, the PBOC said, compared with a 13.5 per cent gain economists projected and a 13.3 per cent February rise.

"The rapid expansion of credit continues to cause worries and show just how precarious the Chinese economy really is," said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen. "Credit growth numbers of this size haven't been seen since shortly after the global financial crisis."

Industrial output expanded 6.8 per cent in March from a year earlier, compared to the median forecast of 5.9 per cent and 5.4 per cent in the first two months of the year. Retail sales rose 10.5 per cent from a year earlier in March, compared to an estimate of 10.4 per cent. The survey-based unemployment rate rose slightly in March to a range around 5.2 per cent, a statistics bureau official said.

China has been making the transition away from heavy industries to a services-led and consumption-driven economy, creating new winners in startups and media and losers in fading industries like coal and steel. The government is seeking to reduce overcapacity at heavy industrial plants without derailing the economy or slashing too many jobs.

"With the outlook for most other organic growth drivers still subdued - especially corporate investment and exports - the government will need to continue to rely on stimulus, notably infrastructure investment, to prevent growth from falling below its overly ambitious medium-term growth target of 6.5 per cent next year," Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, wrote in a note.