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China Just Posted Its Slowest Annual Growth in 26 Years

New Cars Line Up At Parking Lot In ShenyangNew Cars Line Up At Parking Lot In Shenyang
Aerial view of thousands of new cars lining up at a parking lot on Jan. 16, 2017 in Shenyang, Liaoning Province of China. VCG/VCG via Getty Images

China posted 6.8% GDP growth in the fourth quarter, as full-year 2016 growth hit 6.7%, its slowest pace in 26 years following a tidal wave of debt over the past year and a half that the country had never before experienced.

Many economists, skeptical of the official government data, expressed relief that China didn’t post a fourth straight quarter of 6.7% growth, “which would have been a first for a major economy in modern times and would have further weakened the credibility of the data,” wrote Capital Economics’ China economist Julian Evans-Pritchard.

The GDP release comes two days after Chinese officials admitted that growth figures in Liaoning province were inflated by at least 20% from 2011 to 2014.

Although China has often been accused of inflating its economic output, economists say the government just as often underestimates growth. The government had set a target of 6.5% to 7%.

Lately, China’s economy has experienced a screaming rise to nearly hit the official rate. Capital Economics’ proxy estimate of GDP growth rose to 6.4% in the past quarter, and other economists have concluded that the Chinese economy has been booming of late.

A comparison to last year’s data, when the Chinese economy was struggling, and the recent flood of debt were behind the latest rise.

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

But more stunning is how the country’s domestic debt ratio (total debt to GDP) rose by 28% of Chinese GDP in the 12 months through last June—a faster pace than that of China’s 2008-2009 stimulus boom, according to Emerging Advisors Group. That lit a torch under real estate markets, which boomed last year, and which central Chinese officials are currently trying to rein in.

At the World Economic Forum in Davos this week, Chinese President Xi Jinping repeatedly invoked the stability of China’s economy. That stability, however, may have come at a cost. Loans last year expanded at twice the rate of economic growth, a rate that cannot continue to drive growth, as China’s total debt-to-GDP passes 250%.

Economists, including HSBC’s Julia Wang, are predicting an economic slowdown in 2017, following a retreat from the heady debt expansion of this year.