Tuesday 20 February 2018

China reports fastest growth this year but pace may be unsustainable

China's economic growth rebounded in the three months ending in September
China's economic growth rebounded in the three months ending in September

Aileen Wang and Kevin Yao

China's economy grew at its quickest pace this year between July and September, underpinned by investment, although analysts question if the vigour would continue in coming months.

The world's second-largest economy grew 7.8pc in the third quarter from a year earlier, in line with expectations, data from the National Bureau of Statistics showed on Friday.

So far this year, investment has accounted for more than half of the expansion, showing the challenges faced by Beijing in trying to restructure the economy towards consumption, which policymakers expect to provide more sustainable growth in the years ahead.

After slipping in eight of the last 10 quarters, analysts said growth may fall once again in the current October-to-December period. Exports are expected to soften and authorities may also rein-in credit expansion after inflation pushed to a seven-month high.

"The growth peak was behind us in the third quarter," said Ting Lu, an economist at Bank of America-Merrill Lynch. "We believe the People's Bank of China will slightly shift its monetary policy from a moderate expansion in the third quarter to a neutral stance."

After three decades of double-digit expansion fuelled by exports and investment, Beijing is trying to shift or "restructure" the economic mix so that activity is geared much more to consumption.

That means the economy has slowed down compared with previous years, although sluggish global demand has provided an added weight dragging on China's growth.

For the first nine months, the economy grew 7.7pc, keeping it on track to achieve the government's growth target of 7.5pc this year, far outperforming other major economies but still the worst performance for China in 23 years.

The fragility of China's latest economic revival comes as no surprise. Exports suffered a surprise fall in September after demand from emerging nations crumbled on volatile financial markets, a trend the government said this week is expected to last.

And with the yuan hitting a record high on Friday for the fifth consecutive day, powered in part by strong capital inflows, Chinese exporters may face a tougher time yet as the rising currency erodes their competitiveness.

"The economy is facing a complex and uncertain domestic and international environment," Sheng Laiyun, a spokesman for the National Bureau of Statistics told a briefing.

"In addition, we have accummulated chronic structural imbalance problems in our economy and need to deepen reforms to address them."


The latest data shows China is still a long way from having consumption as the mainstay driver of growth.

For the first nine months, consumption accounted for 46pc of growth, much less than the 56pc taken up by investment. Exports, on the other hand, subtracted 1.7pc.

Investment in the property sector, where prices are at record highs despite measures to calm the market, appeared to be especially buoyant.

"We think the recovery in the third quarter was mainly driven by the strong momentum of the property market," said Shen Jianguang, chief China economist with Mizuho Securities in Hong Kong.

Underscoring strong growth in the real estate industry, the sector accounted for 15.8pc of the economic activity in the first nine months, up from 14.8pc in the first half of the year.

Overall investment rose in the first nine months of 2013 by 20.2pc compared with a year earlier. Analysts had expected a rise of 20.3pc.

Other figures released on Friday suggested the economy was slowing down at the end of the third quarter.

Factory output in September rose 10.2pc from a year earlier, slightly above expectations of 10.1pc but weaker than August's annual pace of 10.4pc.

Retail sales rose 13.3pc from a year earlier, slightly below expectations for an increase of 13.5pc and slowing down from 13.4pc in August.


Most economists believe Chinese authorities will keep interest rates unchanged in the next year-and-a-half to underpin the economy.

Yet in a complication for policy, inflation hit a seven-month high in September of 3.1pc at a time when the central bank has voiced concerns about a brisk expansion in credit.

This has led some economists to predict China may tweak its policies in coming months to put a brake on credit growth.

Lu from Bank of America-Merrill Lynch said the government could take steps to crimp rapid credit growth and avoid expanding its "mini stimulus", which has so far included accelerating infrastructure investment.

"The new government under Premier Li Keqiang will prevent further quickening of credit growth," Lu said.

Analysts polled by Reuters had expected the world's second-largest economy to grow 7.8pc in the third quarter from a year earlier, picking up from 7.5pc in the second quarter and compared with 7.7pc in the first.

The latest expansion was the strongest since 7.9pc in the fourth quarter of 2012.

Online Editors

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business