China's economy off to a strong start as investment rebounds

BEIJING • China issued a raft of upbeat data yesterday showing the economy got off to a strong start to 2017, supported by strong bank lending, a government infrastructure spree and a much-needed resurgence in private investment.

Solid growth is welcome news for China's policymakers as they turn their focus to containing risks from a sharp build-up in debt ahead of a major leadership reshuffle later this year.

But economists are not sure how long the pace can be sustained as the central bank takes a tighter stance on credit and exporters brace themselves for a surge in United States protectionism.

Fixed-asset investment expanded more strongly than expected in the first two months as growth in private investment more than doubled from last year, while surging demand for steel for new roads, bridges and homes lifted factory output.

"Today's data appeared to be mainly driven by infrastructure spending and a rebound in the real estate sector," said Mr Zhou Hao, an economist at Commerzbank.

  • 6.3%

    Industrial output growth in January and February, slightly more than expected and the best pace in nearly a year.

    8.9%

    Growth in fixed-asset investment in January and February, from 8.1 per cent growth the same period last year.

    6.7%

    Private investment growth in January and February, more than twice the pace of last year's growth.

Mr Julian Evans-Pritchard, China economist at Capital Economics, said: "This strength remains heavily reliant on rapid investment growth that will be difficult to sustain, given clear signals that the fiscal and monetary policy stance will be less supportive this year."

China's new loans fell sharply last month from near-record levels the previous month but were still higher than expected.

Fixed-asset investment growth accelerated to 8.9 per cent in January and February from the same period last year, largely due to strong property and infrastructure construction.Growth in private investment quickened to 6.7 per cent, more than twice the pace of last year, suggesting private firms are growing more optimistic about the business outlook.

Mr Sheng Laiyun, a spokesman for the statistics bureau, attributed the rebound largely to better implementation of public-private partnership projects, which the government has been pushing.

Industrial output rose 6.3 per cent, slightly more than expected and the best pace in nearly a year.

China's property sales by area surged 25.1 per cent in the first two months from a year ago, well above the annual rate last year which was the fastest in seven years.

Real estate investment growth moderated but only slightly, to 8.9 per cent, according to Reuters' calculations. A rebound in the sector could risk another round of cooling measures.

Retail sales also disappointed. Sales grew 9.5 per cent in the first two months, the slowest pace in nearly two years and cooling from 10.9 per cent in December.

But the statistics bureau's Mr Sheng told reporters "there is no problem with consumption in China", stressing that weaker growth is mainly due to a slowdown in auto sales after the government rolled back tax breaks on small cars.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 15, 2017, with the headline 'China's economy off to a strong start as investment rebounds'. Print Edition | Subscribe