By Scott Cendrowski
April 17, 2017

China’s first-quarter GDP growth hit 6.9%, the highest level since the fall of 2015 and a shade better than economists had expected.

The government’s official GDP releases should be viewed skeptically, for no less a reason than that at least one local government has confessed to inflating GDP figures for years.

But researchers who track the economy through proxies said the latest high growth looked real. London-based Capital Economics compiles a China Activity Proxy index that recorded growth near 6.5% in both the fourth quarter of 2016 and the first quarter this year.

The surge in Chinese real estate prices and demand appears to be pumping up the entire economy. Last year nationwide prices climbed just under 20%. “To call the housing market the single most important driver of the Chinese economy is no exaggeration,” Amy Yuan Zhuang, Chief Asia Analyst for Nordea in Singapore, wrote today.

Manufacturers in particular rode the wave. The latest Chinese PMI surveys for manufacturing stand at three-year highs, as electricity consumption grew by 8% in the first quarter and rail freight volumes by 13%.

In March, industrial output growth boomed to 7.6%, more than a percentage point higher than economists were expecting.

This surge was initially supported by an unprecedented growth in debt over the past couple of years.

China’s total social financing, the government measure that encompasses total debt including bank loans as well as nonbank and other lending, rose by more than 11% last year.

Here’s what juiced real estate prices even more: The country’s domestic debt ratio (total debt to GDP) rose by 28% of Chinese GDP in the 12 months through last June—which was a faster pace than during China’s 2008-2009 stimulus boom, according to Emerging Advisors Group.

That credit growth is now slowing down as the government scales back the pace of lending. In March, new yuan loan growth reached 1.02 trillion yuan, which was 12.4% growth, down from 13% growth in February.

Capital Economics is among those who expect China’s growth rates to slow later this year, but for now the gaudy growth rates reign supreme.

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