BEIJING: Chinese growth hit its weakest rate for more than a quarter-century last year but while Friday’s data pointed to stability in the world’s No. 2 economy, Beijing faces an uncertain outlook that could see a trade stand-off with Donald Trump. After a tumultuous start to 2016, a flood of stimulus ensured the government hit its annual growth target and even recorded a quarterly pick-up for the first time in two years. The Asian giant is a crucial driver of global growth but leaders are trying to reduce its reliance on exports and state-backed investment and instead focus on domestic consumer spending to drive expansion. However, the transition has proved bumpy, with the crucial manufacturing sector struggling in the face of sagging global demand and excess industrial capacity left over from an infrastructure boom.
The economy grew 6.7 percent last year, in line with forecasts in an AFP survey but down from 6.9 percent in 2015 and the worst reading since 1990. The government targeted 6.5-7.0 percent. But the October-December increase of 6.8 percent marked the first quarterly improvement since the final three months of 2014. Shanghai stocks ended the day 0.71 percent higher on the news. The National Bureau of Statistics (NBS) called the figure a “good start” for the government’s goal of achieving 6.5 percent annual growth through 2020. “China’s economy was within a proper range with improved quality and efficiency. However, we should also be aware that the domestic and external conditions are still complicated and severe,” NBS director Ning Jizhe told reporters in Beijing. He added that the coal and steel industries had cut overcapacity, but structural reform should be the “mainline” this year, urging policymakers to focus on “fending off risks” to stability.
The positive close to the year was in contrast to the beginning, when worries about the state of the economy hammered global markets and the yuan tumbled against the dollar. The improvement came on the back of a property boom in the first three quarters, loose monetary policy, and strong fiscal support, OCBC Bank’s Tommy Xie told Bloomberg News. But he warned “those three factors will all wane in 2017.” Though questions surround China’s data Julian Evans-Pritchard of Capital Economics said their measurements confirmed a “pronounced recovery,” albeit one “unlikely to be sustained for long.” There is growing concern about the outlook as Trump heads to the White House Friday, having repeatedly accused Beijing of unfair trade practices and threatening to slap huge tariffs on its goods. He has also accused it of currency manipulation. It is clear China’s exports to the US “will face a harsher climate” under Trump, which will weigh on growth, Louis Kuijs of Oxford Economics said in a note, forecasting 6.3 percent growth next year. Tighter real-estate policies will turn the sector from a growth driver in 2016 to a drag in 2017, spurring more infrastructure investment to fill the void, Zhao Yang of Nomura said in a note.
Adding to uncertainty are strong capital outflows as an expected hike in US interest rates lead investors to seek better returns — despite a series of measures aimed at preventing such moves — sending the yuan to eight-year lows. The weaker currency helped boost exports in the second half, but soft December trade data added to worries about possible battles with Trump. A long-running bad debt problem has also still to be addressed, with warnings from the International Monetary Fund (IMF) to the Bank of International Settlements that failure to do so could fan a serious financial crisis. “To prevent unemployment from going up, China has to allow an explosive growth in its debt. The problem there is that you cannot allow debt to grow at this pace forever,” Michael Pettis of Peking University’s Guanghua School of Management told AFP. Other figures also released Friday showed China’s industrial production rose 6 percent year-on-year in both December and the full year, while retail sales increased 10.9 percent in the month and 10.4 percent for 2016. Fixed-asset investment, a gauge of infrastructure spending, expanded 8.1 percent during the full year.
