China Growth at 6.9%: In 2017, the State Struck Back

By FeaturesDow Jones Newswires

China's economy expanded a hefty 6.9% last year, the first growth acceleration in seven years, though the roaring property market and infrastructure spending that helped drive the pickup showed signs of flagging.

The pace of growth for 2017 beat market expectations and ticked up from the 6.7% reached in 2016, bucking a slowing trend that began in 2011.

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In the final quarter of 2017, the economy grew by 6.8% from a year earlier, the same pace as the previous quarter, which also topped analysts' expectations.

Despite the strong headline performance, many economists expect the slowdown to resume as a sustained campaign by Beijing to curb risky lending bites into investment in buildings, infrastructure and factory goods.

In its 2018 economic plan unveiled in December, Beijing called for a shift toward higher-quality growth and vowed to battle financial risks, pollution and poverty. Measures to do so, such as lending curbs and closures of smokestack factories, are likely to crimp expansion, though economists expect the government to switch tack should growth dip below 6.5%. That is thought to be the government's bottom-line target.

"Maintaining growth" is still a government objective, said Wu Qing, a former research fellow at a State Council think tank who is now chief economist at China Orient Asset Management Co.

Government support for the economy was on full display in 2017, a year of political transition that culminated in the October elevation of President Xi Jinping as a leader on par with Chairman Mao Zedong. Under the banner of "supply-side reform," centered on cutting industrial overcapacity, authorities forced many steel mills and coal miners out of business. Such efforts, coupled with a rebound in demand driven by roaring home sales, led to a surge in prices for factory goods, which helped profits, especially those at large state companies that dominate their industries.

State firms controlled by the central government, for instance, saw their profits jump 15.2% last year--the highest growth rate in five years--to reach 1.4 trillion yuan, or about $219 billion, according to official data.

Meanwhile, despite recognizing the need to bring down the nation's debt that is estimated to have reached 265% of China's economy as of December, the government has largely kept the credit tap open. Bank lending hit a record last year. Local officials across the country boosted spending on slum renovations, rail lines and other infrastructure projects.

Outside the country, a recovering global economy led by the U.S. also helped lift the Chinese economy by boosting its sales overseas. About 9% of the growth in the economy last year came from net exports, contrasting with the previous two years when trade was a drag on the economy.

A number of indicators for the last quarter of 2017, from industrial output, fixed-asset investment to retail sales, showed weakening momentum for expansion in 2018, as Beijing's efforts to restrain risky lending begin to bite.

Government efforts to prevent speculative home buying last year hit home prices in megacities such as Beijing and Shenzhen, raising prospects for a nationwide slowdown in home sales and investments that powered growth in the past year.

Authorities are also slowing down approval of new infrastructure projects in a bid to control rampant borrowing, officials say. In recent months, for instance, the central government has outright canceled some subway and other projects. Meanwhile the Finance Ministry and others have clamped down on localities seeking to raise money by masking government-funded projects as public-private joint ventures.

"I'm not optimistic about infrastructure spending, at least for the first quarter," said an official close to the nation's top economic planning agency.

Liyan Qi contributed to this article.

(END) Dow Jones Newswires

January 18, 2018 03:21 ET (08:21 GMT)

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