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China shows signs of debt-fuelled recovery

International Business
Sat, 16 Apr 2016

Beijing: China posted its slowest economic growth since 2009 but a surge of new debt appears to be fuelling a recovery in factory activity, investment and household spending in the world’s second largest economy.

That’s good news in the near-term, economists say, but many worry it marks a return to the old playbook used during the financial crisis, when Beijing hand-cranked its economy out of a slowdown through massive stimulus.

Official data yesterday showed China’s gross domestic product grew at an annual rate of 6.7 per cent in the first quarter of the year, easing slightly from 6.8pc in the fourth quarter as expected. However, other indicators released showed new loans, retail sales, industrial output and fixed asset investment were all better than forecast.

While analysts say the data is evidence of a bottoming out in the economy’s slowdown, some warn that the first quarter of 2015 got off to a similarly glowing start before a stock market crash later that year.

“What this shows is a stabilisation of the old economy,” said Raymond Yeung of ANZ, pointing to recovery in industrial production and fixed asset investment.

“I would still be a bit cautious about headline growth... last year’s 6.9pc figure was underpinned by a massive contribution from financial services, and the strong loan and credit growth recently and the recent resumption of IPO activity suggests this could still be a big contribution.”

The National Bureau of Statistics said that while main economic indicators showed positive changes, “downward pressure cannot be underestimated.”

Global and domestic financial markets took the data in their stride. The NBS did not distribute quarterly GDP figures as it has in the past, saying it needed more time to calculate the figure.

Beijing hopes a recovery – even a credit-fuelled one – can be sustained to avoid the need for more aggressive stimulus that could re-inflate asset bubbles and make it more difficult to retrain Chinese firms to move up the value chain.

Chinese banks extended 1.37 trillion yuan ($211.23 billion) in net new yuan loans in March, nearly double the previous month’s lending of 726.6bn yuan, suggesting renewed appetite for investment among wary Chinese corporates.

China’s retail sales growth quickened to 10.5pc, while fixed-asset investment growth quickened to 10.7pc year-on-year in the first quarter, beating market expectations for 10.3pc, and industrial output growth leapt up to 6.8pc, surprising analysts who expected it to rise 5.9pc on an annual basis after a rise of 5.4pc in the January and February period.

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