China’s GDP Outpaces First Quarter Predictions as Steel Output Soars to New Record

April 17, 2017, 4:14 AM UTC
China Economy
In this Sunday, April 16, 2017 photo, a worker takes a rest near a mural on display outside a construction site at the Central Business District of Beijing. China's economic growth ticked higher to 6.9 percent in the first quarter of the year, according to the latest figures. The official data released Monday, April 17, 2017, show that the world's second-biggest economy grew at a slightly faster pace in the January-March period compared with the previous quarter's 6.8 percent expansion.(AP Photo/Andy Wong)
Andy Wong—AP

China‘s economy grew 6.9% in the first quarter from a year earlier, slightly faster than expected, supported by a government infrastructure spending spree and a frenzied housing market that is showing signs of overheating.

Analysts polled by Reuters had expected the economy to expand 6.8% in the first quarter, the same pace as in the fourth quarter of 2016.

First-quarter growth was the fastest since the third quarter of 2015, with March data showing investment, retail sales, factory output and exports all grew faster than expected.

The strong reading should help underpin wobbly global financial markets but adds to worries that China‘s government is still relying too heavily on stimulus and “old economy” growth drivers and is not doing enough to tackle risks from an explosive build-up in debt.

While China‘s data has been largely upbeat so far this year, many analysts widely expect the world’s second-largest economy to lose steam later in the year as the impact of earlier stimulus measures starts to fade and as local authorities step up their battle to rein in hot housing prices.

Real estate investment growth accelerated to 9.1% in the first quarter from a year earlier, as the pace of new construction starts quickened despite intensified government cooling measures.

Though policymakers have pledged repeatedly to push reforms to head off financial risks and asset bubbles, the government is seeking to keep the world’s second-largest economy on an even keel ahead of a major leadership transition later this year.

The government is aiming for growth of around 6.5% in 2017, slightly lower than last year’s target of 6.5-7% and the actual 6.7%, which was the weakest pace in 26 years.

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Economic data was up across the board in March, with factory output increasing at the fastest pace since December 2014 and firms stepping up capital investments after a slowdown last year.

Industrial output rose 7.6% in March, with steel output the highest on record, according to Reuters data, adding to evidence of a global manufacturing revival that is buoying prices of industrial materials from iron ore to coking coal.

But consumption also appears to be picking up, contributing to 77.2% of first-quarter growth, while retail sales growth picked up to 10.9% after slowing in the first two months of the year.

Still, many analysts expect economic growth to cool later this year as the impact of earlier stimulus measures starts to fade and as local authorities resort to ever-tougher measures in a bid to get soaring home prices under control.

Beijing also is continuing to rely heavily on new credit to generate growth as productivity slows, despite worries about debt risks.

China‘s banks extended the third highest loans on record in the first quarter, though March lending was less than expected.

At the same time, China‘s central bank has shifted to a tightening bias, and is using more targeted measures to contain risks in the financial system, after years of ultra-loose settings.

It has raised short-term interest rates several times already this year, and further modest hikes are expected as it tries to coax debt-laden firms to reduce leverage.